Nonprofit Bookkeeper vs. Accountant, Who Should You Hire?
If you’re unfamiliar with the nuances of accounting, you probably don’t realize that bookkeepers and accountants are not interchangeable. The fields are so often lumped together that their differences can be unclear.
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They are, in fact, separate entities with separate duties. Generally, the nonprofit staff members who try to take on all of the nonprofit financial tasks are executive directors, volunteer bookkeepers, or part-time employees. This tends to be impractical because these parties rarely have the necessary experience to effectively distinguish the types of tasks they’re doing or the expertise to do it well.
The other option is to outsource bookkeeping and accounting services, a time-saver for everyone as it allows experts to handle financial information while taking one responsibility off of leaders’ plates.
It’s important to keep the differences between the positions of a nonprofit bookkeeper and nonprofit accountant in mind so that your organization knows who to hire when it’s time to expand your finance department because of additional needs.
Below you’ll find a brief description detailing the duties of each position. You can use this to decipher which option best suits the needs of your nonprofit. We’ll cover:
- What does a nonprofit bookkeeper do?
- How does an accountant differ from a nonprofit bookkeeper?
- How do I hire a nonprofit bookkeeper or accountant?
The basic differences between nonprofit bookkeeping and accounting are outlined below:
Nonprofit bookkeepers and accountants are both incredibly important to organizations. They’re both necessary for effective, well-informed financial decision-making.
Ready to learn more? Let’s dive in.
What does a nonprofit bookkeeper do?
Nonprofit bookkeepers are responsible for the day-to-day activities of the nonprofit organization.
While nonprofit bookkeeping is in no way lesser than accounting, the functions involved in it are fewer and require limited detail.
A bookkeeper’s duties include:
- Basic data entry. Bookkeepers record all of the expenses, donations, transactions, and other financial data in an organized software solution or spreadsheet.
- Recording one side of a transaction. For example, a bookkeeper will pay bills such as rent, utilities, water, and other necessary operational expenses.
- Writing checks and making deposits. Nonprofit bookkeepers handle general payments and deposits. Then, they record this data in the correct software or spreadsheet.
- Processing payroll. While there is some overlap between bookkeeping and HR departments when it comes to payroll, most small to mid-sized organizations allow this responsibility to fall with the nonprofit bookkeeper.
- Allocating costs. Nonprofit bookkeepers must make the necessary allocations to keep expenses organized. For instance, bookkeepers may allocate costs by program, administrative, and fundraising.
Whenever funds change hands or data needs to be recorded regarding nonprofit financials, a nonprofit bookkeeper is responsible for keeping those records up-to-date and organized.
A bookkeeper is not required to analyze transactions and often lacks the experience and education to do so effectively. Instead, they focus on laying the foundation for accounting processes that will follow. They do this through the act of data entry, inputting information provided by their client/employer.
And, of course, nonprofit bookkeepers provide all of the necessary bookkeeping records to an accountant for further review, analysis, and additional action.
How does an accountant differ from a nonprofit bookkeeper?
Working as an accountant requires at least a four-year education. This degree is almost always in the field of accounting. Accountants also have the ability to take a specialized test that proves their knowledge and increases their credibility as an accountant. Passing this test will give an accountant CPA status, endorsing them as a “certified public accountant.”
You can think of your nonprofit accountant as a numbers detective, as this position requires extended detail and analytics.
While a nonprofit bookkeeper records nonprofit data, an accountant has the educational background necessary to take the analysis of that data to another level. An accountant is responsible for duties such as:
- Reviewing all accounts. Accountants will make sure everything looks correct in the nonprofit’s accounts to make sure the organization is on track for future goals.
- Balancing both sides of a transaction. Accountants handle the balancing of both the credit and debit sides of a double-entry bookkeeping system.
- Determining how a single transaction affects your accounts. Nonprofit accountants help determine the financial health of your organization and how each transaction affects this well-being.
- Understanding the “why” of your accounting situations. Not only does the accountant need to understand, but they also need to explain it to other staff members clearly.
- Preparing detailed reports. Accountants compile comprehensive reports explaining your organization’s transactions, usually on a monthly basis.
- Comparing actual vs. budgeted expenses/income. Nonprofit accountants help your nonprofit understand where your actual expenses/income differ from your budget.
- Comparing actual expenses and income year-to-year. Comparing your nonprofit’s current expenses and income to those from previous years can help create more accurate predictions for the future.
- Preparing your books for audit. Your nonprofit accountant will make sure everything in your transaction history matches your books so that it’s ready for an annual audit.
- Filing your nonprofit’s Form 990. All nonprofits must file an annual Form 990 in order to report financial data back to the government and maintain their 501(C)(3) status. Your accountant will help your nonprofit ensure this tax form is in order each year.
- Reconcile all bank accounts. Accountants match the cash balances on your balance sheet to the bank account records, resolving any discrepancies between the two reports.
- Review all bank accounts to ensure they meet GAAP compliance standards. Nonprofit accountants will keep your nonprofit up to accepted industry reporting standards.
As you can see, accountants take the data recorded by nonprofit bookkeepers in order to analyze it and create actionable steps for the organization.
In addition, an accountant will interpret, classify, and summarize your financial data correctly. They ask themselves questions like:
- “Does this look correct?”
- “Is there a better way to present this?”
- “Should this be allocated with a different method?”
- “Have we associated the right expense to the correct category?”
- “Does this budget accurately portray what we expect to happen?”
Accountants view bookkeeping items with the thought of compliance and the long term of your organization in mind. Their concern is that you maintain your 501c3 status by submitting a correct 990 on time and that you pass your routine audit without difficulty.
How do I hire a nonprofit bookkeeper or accountant?
As we mentioned earlier, there are several ways nonprofit organizations can fulfill the duties of nonprofit bookkeepers and accountants. You may hire a dedicated full-time or part-time staff member, ask a volunteer, assign the duties to an executive position, ask a firm for an in-kind donation of their services, or outsource the responsibility.
Our recommendation? Outsourcing nonprofit bookkeeping and accounting duties to a nonprofit-specific team.
Some of the key reasons your nonprofit might choose to outsource your bookkeeping and accounting services include:
- You don’t have an in-house expert. It’s better to have a good outsourced nonprofit bookkeeper or accountant than a bad in-house one. This will help prevent mistakes and ultimately save time down-the-line that would’ve been otherwise spent correcting those blunders.
- It’s less expensive in the long-run.> Outsourcing is a classic option to help your nonprofit save money on office expenses. Conduct a cost comparison on what you spend on internal accounting and bookkeeping currently (including both direct financial cost and time spent by team members) to see if it’s a good financial decision for your nonprofit.
- It provides another opinion.> When you outsource your nonprofit bookkeeping or accounting, you not only receive an expert opinion, but you get a completely unbiased one. Third-parties don’t have the same emotional ties to the organization and are able to provide data-founded recommendations for growth.
Consider the options for your nonprofit. Maybe you need to outsource and hire both a nonprofit bookkeeper and accountant; maybe you have an in-house bookkeeper, but need help with accounting tasks from a certified CPA; or, maybe you simply need help filing your Form 990.
No matter what the case is for your nonprofit, you’ll need to conduct the same steps to hire the right person.
When you’ve decided to hire a nonprofit bookkeeper or accountant, you should first examine your nonprofit’s needs. Make a list of the services your nonprofit needs to account for, then decide if those are in the realm of nonprofit bookkeeping or accounting.
Then, conduct research about available firms. Check out referrals from trusted nonprofit sources, ask fellow nonprofits which firms they used, and conduct your own research to find potential firms near you. Narrow down the list by comparing services to the list of needs for your nonprofit.
Look for a firm that provides both nonprofit bookkeeping and accounting services. While you may just need one or the other right now, you never know how your needs may change in the future. Ensuring your provider offers both services opens up the opportunity to outsource your entire financial department in the future.
Finally, conduct interviews and pick the best firm!
Although nonprofit bookkeepers and accountants are so frequently lumped into the same category, it’s important to remember the key differences between the two. These differences will help determine the best hiring choices to meet your nonprofit’s needs.
Want to learn more about financial services for nonprofits? Check out these additional resources:
- What Nonprofit Executive Directors Should Know About Accounting. Nonprofit Executive Directors shouldn’t do all of your financial legwork, but they should know something about it. This article explains more!
- Why We Love Nonprofit Accounting. Learn more about why the experts at Jitasa love nonprofit accounting. You should make sure you have someone on your team who is both passionate and an expert in the field.
- Nonprofit Bookkeeping and Accounting Services by Jitasa. Get started outsourcing your nonprofit’s bookkeeping and accounting services with Jitasa. Learn more about our unique approach.