Definition
Accounting is a broad term that refers to the process of recording, summarizing, analyzing, and reporting financial transactions. A CPA, or Certified Public Accountant, on the other hand, is a specific type of accounting professional who has met certain educational and experiential requirements and passed a national exam. While all CPAs are accountants, not all accountants are CPAs.
Key Takeaways
- Accounting is a broad field that encompasses all aspects of managing a company’s financial data, including bookkeeping, preparation and analysis of financial statements, and financial planning. In contrast, CPA (Certified Public Accountant) is a designation for a specific type of accountant, who has passed the CPA exam and met other state-specific requirements.
- While all CPAs are accountants, not all accountants are CPAs. Essentially, becoming a CPA is an additional step that generally includes additional education and experience, passing a rigorous and comprehensive exam, and meeting licensing and continuing education requirements.
- The services provided by CPAs are generally more specialized than those provided by accountants. CPAs are qualified to perform audits, review financial statements, and represent clients before the IRS. On the other hand, accountants, depending on their level of education and certification, may be involved in a variety of financial tasks but do not have the same level of authority in legal and regulatory matters as CPAs.
Importance
The finance term: Accounting vs CPA is important because it represents two different levels of expertise and responsibilities in the field of finance.
An accountant is a finance professional who performs tasks such as analyzing business costs, preparing financial reports, handling tax returns, and assisting with the general financial operations of a business.
However, a Certified Public Accountant (CPA) is an accountant who has met additional state-specific education and experience requirements and has passed a rigorous CPA exam, which allows them to perform more specialized tasks.
This can include auditing financial statements, designing tax strategies, advising on business structures, and providing strategic financial consultation services.
Therefore, understanding the distinction between these two terms plays a critical role in businesses when hiring finance professionals as they have different roles, responsibilities, and capabilities.
Explanation
Accounting essentially refers to the systematic and comprehensive recording of financial transactions related to a business, and also it’s the process of summarizing, analyzing and reporting these transactions to oversight agencies and tax collection entities. The main purpose of accounting is to provide a clear picture of a company’s financial health, enabling the management to make informed decisions for the growth and sustainability of the business.
Accountants work with individuals or businesses, handling monetary transactions by recording financial information. Their duties include producing financial records, assisting with auditing tasks, tax filings, and financial planning.
A Certified Public Accountant (CPA) on the other hand is a professional designation given by the American Institute of Certified Public Accountants (AICPA) to individuals that pass the Uniform CPA Examination and meet certain education and experience requirements. CPAs provide a range of services, but their primary focus is on public accounting, which includes auditing, tax, consulting and financial planning services.
They are trusted financial advisors who help individuals, businesses, and other organizations plan and reach their financial goals. Therefore, the purpose of a CPA is not only to ensure the correctness of a company’s financial data, but also to advise on tax matters, help to improve bookkeeping strategies, and to conduct audits when necessary in order to provide assurances that the financials are free of material misstatements.
Examples of Accounting vs CPA
A Small Business Owner: For a small business owner who just started, they might employ an accountant to manage overall financial documents such as payroll, transactions, financial reports, and filing tax returns. However, as their business grows and the financial situation becomes more complex, they might need a Certified Public Accountant (CPA) to handle tax-related issues, audits, business valuation, and to provide strategic financial and business consultancy.
A Corporation: In a large corporation, different departments may utilize accountants and CPAs for different purposes. The accounting department would consist of accountants who handle daily financial transactions, generate financial reports, and track revenue and expenses. On the other hand, when it comes to the corporation’s tax planning, financial auditing, and compliance with laws, they would require the professional expertise of a CPA.
A Non-profit Organization: Similar to a business, a non-profit relies on accountants to handle the daily finances, and a CPA to ensure they are correctly filing as a non-profit, are in compliance with any regulations or requirements, and are correctly managing any grants or funding they receive. Additionally, a CPA with a non-profit specialty may be able to provide strategic advice to maximize funding and minimize costs, critical for non-profit survival and growth.
FAQ: Accounting vs CPA
What is Accounting?
Accounting is a field of study and profession dedicated to carrying out those tasks related to the recording, sorting, retrieving, summarizing and presenting financial information or transactions. It’s broken down into different types including financial, management, auditing, tax, and others.
What is a CPA?
CPA stands for Certified Public Accountant. It is a designation for qualified accountants in the U.S who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements for certification as a CPA.
What are the main differences between Accounting and CPA?
The main difference between accounting and CPA lies in their scope and mandate. While accounting can be practiced by anyone with the basic knowledge of financial transactions, a CPA is an accounting professional who has received a specific certification proving his/her expertise in the sector.
Is it better to be an accountant or a CPA?
Each has its benefits. CPAs tend to earn more than accountants due to their additional certification, but it also comes with more responsibility. The designation you choose depends on what you want your role to be in accounting, your long term career goals, and the time and commitment you are willing to invest.
What are the job prospects for an accountant vs a CPA?
The job prospects for accountants and CPAs are generally positive. An accountant can work in various domains such as public sector, management, and internal auditing among others. CPAs, on the other hand, have a wider range of job opportunities in high level roles such as CFOs and potentially partners in public accounting firms.
Related Entrepreneurship Terms
- Public Accounting: This refers to the provision of accounting services to other businesses and individuals, which includes tax advice, auditing, and financial planning as any Certified Public Accountant (CPA) would do.
- Financial Reporting: A core duty of both accountants and CPAs that involves preparing financial statements to provide a clear view of a company’s financial standing.
- License and Certification: This denotes the requirement for an accountant to obtain CPA certification to assume certain responsibilities such as signing audit reports.
- Auditing: Often done by CPAs, auditing is the process of examining an organization’s financial records to ensure their accuracy and compliance with regulations.
- Tax Preparation and Planning: Both accountants and CPAs provide tax-related services, but CPAs are usually more equipped to handle complex tax situations and represent clients before the IRS.
Sources for More Information
- Investopedia: This website provides broad coverage on various finance-related topics, including the differences between Accounting and CPA.
- Accounting.com: This site is the ultimate destination for those looking for comprehensive information and updates on the global accounting profession.
- American Institute of CPAs (AICPA): This site provides detailed information about the certifications and rules beyond a CPA qualification.
- AccountingCoach: This website provides clear understanding on accounting principles through simple, easy-to-understand language, and covers differences between general accounting and CPA.
