Accounting Terms 101: Differences Between an Accountant and a CPA

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Everyone who runs a business should be interested in accounting. It's the system used to measure a company's financial performance and tax liability. So what's the difference between a tax accountant and a Certified Public Accountant (CPA)?

One important distinction is that tax accountants and CPAs are qualified to prepare tax returns. Still, CPAs have additional education and training in auditing and financial statement preparation, which give them supplemental jurisdiction in some fields of accounting. 

So, what does all of this mean for you and your business?

Learning about basic accounting terms and concepts is a valuable undertaking because it can save you time, money, and legal trouble down the road.

So, let's begin with our 101 lessons in accounting terms: the difference between an accountant and a CPA.

What is CPA?

"CPA" stands for "certified public accountant." A CPA is an accountant who has passed a rigorous exam administered by the state's board of accountancy. To use the CPA designation, CPAs must also adhere to strict ethical standards.

CPA tax accountant follows strict rules to avoid conflicts of interest or confidentiality breaches.

The AICPA's Code for Professional Conduct is a detailed set of guidelines that CPAs must adhere to. 

The code covers many topics, from client confidentiality to conflicts of interest. 

Complying with the code is essential for CPAs, as it helps to ensure that they are providing high-quality, ethical service to their clients. The code is also regularly updated to reflect changes in the profession, so CPAs need to keep up-to-date on its provisions. 

By adhering to the AICPA's Code for Professional Conduct, CPAs can help maintain the profession's integrity and ensure that they are providing the best possible service to their clients.

What is an accountant?

An accountant has completed a four-year degree in accounting and has passed the Uniform Certified Public Accountant Examination.

An accountant is a person who provides financial services to businesses and individuals. These services can include tax preparation, bookkeeping, auditing, and finance management.

An accountant can also file a report about their findings with the Securities and Exchange Commission (SEC), a federal government agency that regulates the securities industry.

There are many different types of accountants:

• A tax accountant, for example, is a person who specializes in tax law and prepares tax returns for businesses and individuals.
• An income tax accountant is focused only on tax planning and advises clients on how to minimize their tax liability.
• A personal tax accountant is a tax professional who helps individuals and families file their annual income taxes. They can also provide guidance on tax planning and offer advice on ways to reduce one's tax liability. A personal tax accountant may work for an accounting firm or be self-employed.
• The forensic accountant uses accounting skills to investigate financial crimes such as embezzlement and fraud.

General difference

Tax accountants generally focus on tax planning and compliance, while CPAs provide a broader range of services. The most significant difference is that their state's Board of Accountancy licenses CPAs.

CPAs must have 150 semester college credit hours, pass a four-part exam, and complete one year of professional experience to earn this license. In other words, CPAs have met rigorous standards set by their state.

Not all CPAs are tax experts

Many CPAs don't do any tax work at all. 

A CPA tax accountant is a certified public accountant who provides insight and guidance on tax-related matters. CPAs are uniquely qualified to offer taxation services because they have extensive accounting and tax law training. 

In addition, CPAs must adhere to high ethical standards and maintain their professional competence through continuing education.

So if you're looking for someone to help with your taxes, make sure you ask whether the CPA you're considering has experience in tax planning and preparation.

How can you use their responsibilities for your business

Only CPAs can file reports with the Securities and Exchange Commission (SEC). If you're a small business owner who wants to go public, you'll need to hire a CPA.

Additionally, many CPAs also have experience working as tax advisors. They can help you navigate the often-complex tax code and ensure you're taking advantage of all the deductions and credits you're entitled to.

If you're running a small business, it's a good idea to consult with a CPA regularly to ensure that your financials are in order and that you're staying compliant with all applicable tax laws.

What about IRS?

While both accountants and CPAs can prepare tax returns, only CPAs are licensed to represent taxpayers before the Internal Revenue Service. Therefore, choosing a CPA is essential if you're looking for someone to help you with your taxes, especially facing an audit.

CPAs can also provide other services, such as financial planning and consulting. They often have more experience than accountants and may be better equipped to handle complex economic issues.

Basic tax accountant terminology

As a business owner, it is vital to have a basic understanding of accounting. The best way to start is to know the basic terminology in tax accountants' circles.

These are just a few of the most critical accounting terms for small business owners. Consider talking to a tax accountant or CPA about your specific needs if you're unsure where to start. 

They can help you set up your books to best suit your business and make sure that you stay compliant with tax laws.

Here are four essential accounting terms every business owner should know:

Assets: Assets are the economic resources of a company, including cash, accounts receivable, inventory, and property.

Liabilities: Liabilities are the financial obligations of a company, including accounts payable, loans, and credit cards.

Equity: Equity is the difference between a company's assets and liabilities. It represents the owner's investment in the business.

Income: Income is the revenue generated by a company's activities minus expenses. It is also referred to as "net income" or "profit." An accountant specializing, especially in this accounting field, is called an Income tax accountant. 

Cash Flow: This is the money coming in and out of your business. It is important to track your cash flow to see where your money is going and make sure that you have enough cash on hand to cover expenses.

Accounts Receivable: This is the money owed to your business by customers who have not yet paid for goods or services. Tracking accounts receivable can help you manage your cash flow and collect payments from customers on time.

Accounts Payable: This is the money that your business owes to suppliers for goods or services that have been received but not yet paid for. Managing accounts payable carefully can help you avoid late payment penalties and maintain good relationships with suppliers.

Inventory: This is the stock of goods your business has on hand for sale. Keeping inventory levels can help you ensure enough supply to meet customer demand without tying up too much cash in inventory.

Depreciation: This is an accounting method used to spread the cost of a long-term asset (such as a vehicle or piece of machinery) over its useful life. Depreciation can reduce taxable income in the year that the investment is purchased.

How should you act when hiring a tax accountant or CPA?

While accountants and CPAs are essential financial team members, they serve different roles. 

When choosing an accountant or CPA, make sure you understand the different services they offer and what each will do for your business. Then, don’t be afraid to ask questions until you are confident that both parties understand the working relationship. 

Hiring a tax accountant or CPA is a big decision that can significantly impact your business finances. Do your research and find someone who meets your needs and expectations.