The difference between a bookkeeper and an accountant is that a bookkeeper records your business transactions as they happen, while an accountant uses those records to adjust the books, prepare tax returns, plan and advise. Most small businesses need both kinds of work: bookkeeping every month, accounting at year end and whenever a tax question comes up.
The choice matters because a tax return can only be as accurate as the books behind it. In California, the same books also produce your sales tax return for the California Department of Tax and Fee Administration (CDTFA) and your payroll filings with the Employment Development Department (EDD), so mistakes travel.
This guide covers what each role does, how bookkeepers, accountants, CPAs and Enrolled Agents differ, the signs you have outgrown doing the books yourself, and what drives the cost.
What does a bookkeeper do for a small business?
A bookkeeper for a small business records every transaction, reconciles every bank and credit card account to its statement, and turns the month into a profit and loss report you can read. The IRS describes this work in its guide to recording business transactions: transactions are summarized in journals and ledgers, and “generally, it is best to record transactions on a daily basis.”
In a typical month, small business bookkeeping includes:
- Categorizing transactions. Every deposit, card charge and check goes to the right account: sales, cost of goods, rent or supplies.
- Reconciling accounts. Each bank and card account is matched to its statement so the balance in the books equals the balance at the bank.
- Recording bills and invoices. What you owe vendors and what customers owe you.
- Recording owner draws and contributions. Money you take out or put in is kept separate from business expenses.
- Recording payroll. Wages, employer taxes and deposits are booked so the totals match the payroll reports.
- Tracking sales tax. If you hold a seller’s permit, the books show the taxable sales your CDTFA return is built from.
- Producing the monthly profit and loss report. One page showing revenue, expenses and net profit, compared with last month.
The IRS lists the same building blocks for a small business recordkeeping system in Publication 583: a business checkbook, daily and monthly summaries of cash receipts, a check disbursements journal, employee compensation records and a bank reconciliation.
Software such as QuickBooks makes this faster, but a bookkeeper still decides where each transaction belongs. Our monthly bookkeeping for Orange County small businesses is built around exactly this monthly routine.
What does an accountant do that a bookkeeper doesn’t?
An accountant takes the bookkeeper’s records and makes them ready for decisions and for the tax return: adjusting entries, year-end review, tax preparation, tax planning and, with the right credential, IRS representation. Bookkeeping answers “what happened?” Accounting answers “what does it mean, and what do we file?”
The work an accountant typically adds:
- Adjusting entries. Depreciation on equipment, inventory changes, prepaid expenses and accruals that daily bookkeeping does not capture.
- Year-end review. Checking that owner draws, loans and large purchases are classified the way the tax return needs them.
- Tax returns. Federal and California business and personal returns, signed by a paid preparer.
- Tax planning. Decisions made before December 31 about how you pay yourself, what you buy and what you put toward retirement.
- Representation. Answering IRS, Franchise Tax Board (FTB) or CDTFA letters and audits, if the person holds a credential that allows it.
“Accountant” covers a wide range of people: someone with an accounting degree, a Certified Public Accountant (CPA) and an Enrolled Agent (EA) can all use the word. What they may do for you depends on the credential, not the title.
What’s the difference between a bookkeeper, an accountant, a CPA and an Enrolled Agent?
The difference is the license: California does not license bookkeepers, CPAs are licensed by the state, Enrolled Agents are licensed by the IRS, and only CPAs, EAs and attorneys have unlimited rights to represent you before the IRS. The IRS page on tax return preparer credentials says Enrolled Agents, CPAs and attorneys “may represent their clients on any matters including audits, payment/collection issues, and appeals.”
| Role | What they do for a small business | Licensed by | Can prepare your return for a fee? | Can represent you before the IRS? |
|---|---|---|---|---|
| Bookkeeper | Records transactions, reconciles accounts, produces monthly reports | No California license | Only with a PTIN, plus CTEC registration in California | No |
| Accountant (no license) | Bookkeeping plus adjustments, financial statements, analysis | None: the word alone is not a license | Only with a PTIN, plus CTEC registration in California | No |
| CPA | Accounting, tax work, and audited or reviewed financial statements | California Board of Accountancy | Yes | Yes, unlimited |
| Enrolled Agent (EA) | Tax returns, tax planning and representation; many also keep books | The IRS, after a three-part exam | Yes | Yes, unlimited |
| CTEC-registered tax preparer (CRTP) | Prepares returns | Registered with CTEC (not a license) | Yes | Limited, and only with an IRS Annual Filing Season Program record |
A few points behind the table:
- Enrolled Agents are “licensed by the IRS,” must pass the three-part Special Enrollment Examination and must complete 72 hours of continuing education every three years, according to the same IRS page.
- Unlicensed preparers in California must register with the California Tax Education Council. The CTEC FAQ says California CPAs, Enrolled Agents and attorneys are generally exempt from CTEC registration.
- Every paid preparer needs an IRS Preparer Tax Identification Number (PTIN). A PTIN alone gives no right to represent you before the IRS.
For most owner-run businesses, the more practical question is how much of each kind of help you need.
Do I need a bookkeeper, an accountant, or both?
Most small businesses need both: a bookkeeper to keep the books current every month and an accountant to review the year, prepare the tax return and answer agency letters. The question is really whether that is two people or one firm.
A simple way to decide:
| Your situation | What you likely need |
|---|---|
| Sole owner, one bank account, few transactions, no employees, no sales tax | Good software, your own monthly reconciliation, and an accountant at year end |
| Collecting California sales tax or running payroll | A bookkeeper monthly, plus an accountant for the return |
| Several bank or card accounts, inventory, or more than a few employees | A bookkeeper monthly and an accountant who reviews the books before tax season |
| A CDTFA, EDD, FTB or IRS letter has arrived | An Enrolled Agent, CPA or attorney who can represent you |
| A lender or investor wants audited or reviewed financial statements | A CPA firm |
Some very small businesses really are fine on their own. If you reconcile every month, keep business and personal money apart, and have someone credentialed prepare the return, you may not need monthly help yet. That changes when the business adds employees, a seller’s permit or a second location, because each one adds a filing that depends on the books.
When does a small business outgrow doing its own books?
A small business has outgrown doing its own books when the books stop matching the bank, the filings or reality. Five signs come up again and again:
- Personal and business spending are mixed. Publication 583 says to keep your business account “separate from your personal checking account.” When they are mixed, every month needs sorting before it can be recorded.
- Bank accounts have not been reconciled in months. Unreconciled books can show money you do not have, or miss expenses you could deduct.
- Sales tax is filed from estimates. A CDTFA sales tax return should come from recorded taxable sales. Estimates can overpay or underpay, and CDTFA Publication 116 warns that if your records are not adequate in an audit, the CDTFA “will use standard accounting methods to determine how much tax you should have paid.”
- A payroll tax notice has arrived. Late deposits or mismatched quarterly totals on the federal Form 941 or the EDD’s DE 9 are often a bookkeeping problem first, which is why payroll and bookkeeping work best in one system.
- A lender or landlord asks for a profit and loss statement and there is none. If producing one takes a week, the books are not doing their job.
Records also have to last. The IRS says to keep employment tax records for at least four years.
CDTFA’s guide to retaining sales and use tax records asks seller’s permit holders to keep them for at least four years as well. If any of these signs sounds familiar, the cost of help is the next question.
How much does a bookkeeper cost?
What a bookkeeper costs depends on how much work your books create each month, not on a standard rate. Five things drive the price:
- Transaction volume. Fifty transactions a month is a different job from 800.
- Number of accounts. Each bank account, credit card and loan needs its own reconciliation.
- Payroll. Recording wages, deposits and quarterly totals adds work, especially with tips or several pay rates.
- Sales tax. Calculating taxable sales and applying the right district rate for each city you sell in adds a filing.
- Months behind. Catching up old months is a one-time project priced separately from the monthly work.
Hourly billing and fixed monthly fees are both common. We quote a fixed monthly fee after a free consultation: we look at your bank statements and what you file, then give you one figure and a start date.
Price is only half the decision; the other half is who reviews the books and what they are qualified to do with them.
What does it mean when a bookkeeper is also an accountant?
When a bookkeeper is also an accountant, the person keeping your books every month understands what the tax return will need from them, so the categories, owner payments and year-end entries are set up for filing from the start. That is the model at TT Tax: books done by an accountant, priced at bookkeeping rates, and reviewed by an Enrolled Agent who prepares tax returns.
One firm handling both means:
- Fewer handoffs. The person who prepares your return already knows your books, so there is no January scramble to explain them.
- A year-end reconciliation. After the return is filed, the books are reconciled to it, so next year starts from the same numbers the IRS and FTB have.
- Representation by the same person. An Enrolled Agent can answer an IRS letter about a return built from books they reviewed.
- California filings in the same system. CDTFA sales tax returns and EDD payroll filings come from the same reconciled books as the tax return.
Kathy Nguyen has worked in accounting since 2005, including eight years as a corporate controller, and founded TT Tax in Garden Grove in 2014. You can read more about her and the team on our about page, and about how returns are prepared and signed on our tax preparation page.
This article is general information, not tax advice. Every business is different, so talk to a qualified tax professional about your own situation.
Get Your Books and Your Taxes in the Same Hands
If you are weighing a bookkeeper against an accountant, a 30-minute conversation usually settles it. Talk with Kathy Nguyen, EA, in person at 12112 Brookhurst St Ste 8, Garden Grove, or by phone at (714) 462-8098, and we will look at where your books stand and quote a fixed monthly fee. Book a free consultation online and we reply within one business day.
Kathy Nguyen is an IRS Enrolled Agent who has worked in accounting since 2005 and founded TT Tax in Garden Grove in 2014.