Part 2: What Is the Difference Between Bookkeeping and Accounting?
Part 1 was about your bookkeeper. Now let’s see what your accountant does.
Your Accountant’s Job
Once per year you have a “year-end.” This is when your accountant will get your books from your bookkeeper to see what happened over the year. He or she will also discuss with you ‘big picture issues’, make changes to the books accordingly and create your business’s financial statements.
How can you make this easier for your accountant (and cheaper for you)?
First and foremost, your accountant wants a ‘clean’ set of books. What does this mean?
There’ll be trouble (and cost) if your bookkeeper has done a poor job of categorizing transactions, recording GST/HST and reconciling bank and credit card accounts. That’s because your accountant will have to go back and fix those mistakes.
Your accountant will typically charge you two to three times the hourly rate as your bookkeeper. Cheaper to get it right the first time!
When the books are clean, your accountant will have a discussion with. He or she will ask questions like:
- Do you want to earn T4 income this year? (Taxed at the highest rate, but needed to be seen by banks to give you a mortgage.)
- Do you want to declare a dividend this year? (After a small business exempt amount, the remainder is taxed at a lower rate than T4 income.)
- Do you have extra cash sitting in your company that should be moved over to a holding company for protection?
- Do you have a shareholder loan that you’d like to see repaid?
- Are you planning to retire or sell the business sometime soon?
These are the ‘big picture’ questions that only an accountant can help you decide. Working with him or her you will make strategic financial decisions about you and your business.
After you make the decisions then your accountant will finish up by adjusting the books accordingly. They are now ready to be used to do your business’s tax return for the year.
But this discussion depends upon your bookkeeper providing accurate and organized books to you and your accountant. Either that, or you’ll pay through the nose to get them that way.
You will interact with your bookkeeper far more frequently than your accountant. Your bookkeeper will provide you with frequent—usually monthly—updates on the state of your business in terms of the dollars in and dollars out, and where they came from and where they went. During the course of the year, you will make business decisions based upon the updates from your bookkeeper.
You will typically work with your accountant once per year. This will be to make big decisions on the allocation of income created by your business, and to fulfill your business’s regulatory tax requirements.