What is a CPA?
And more importantly, what does a CPA actually do?
In this post, you’ll find the best answer to these two questions.
Today we’re talking about three letters: C-P-A.
What is it? Why does it matter? And who needs one?
What is a CPA?
A CPA is a Certified Public Accountant. And by the way, an accountant is someone who is responsible for recording and interpreting financial information.
CPAs are in the top-tier of accountants. There is no higher designation in the finance or accounting industry than the CPA license.
CPAs are trusted advisors that help businesses with all sorts of business matters, which ultimately have financial implications.
In order to become licensed as a CPA, you must pass rigorous requirements.
First, you have to meet educational requirements.
Most CPAs have Master’s Degrees or at least 150 credit hours.
But that’s actually the easy part.
The hard part is that you have to pass the hardest professional exam that exists, literally.
It’s so hard that only 50% of people pass all parts of the exam on their first attempt.
And there are people with Master’s Degrees in accounting failing this exam with flying colors.
Then lastly, you have to meet certain experience requirements.
These requirements vary based on the state, but you basically have to work in the accounting profession for a period of time to obtain your certification.
According to the US Bureau of Labor Statistics, there are:
over 1.4 million accountants in the US,
over 1.5 million bookkeepers,
and at least 1.2 million taxpayers.
And how many CPAs are there? Just 600,000.
That’s less than 15% of accounting professionals.
So in short, CPAs are in high demand – especially for small businesses.
There are 2 things every business needs – a good lawyer and a damn good CPA.
What Does a Certified Public Accountant Do?
In one word – business.
Since accounting is the language of business, CPAs help businesses conduct themselves by analyzing and interpreting underlying numbers.
But let’s break this down. Let’s talk about what most people think of when they hear the letters “CPA”.
The role of a CPA largely depends on the role and environment in which they operate in.
In Fortune 500 corporations, CPAs might help prepare annual reports for shareholders and record very complex financial transactions.
In small businesses, CPAs might help you select the best entity, hire your first employee, tax plan, create a budget, set your pricing, prepare financial projections, or oversee your books.
For nonprofit organizations, which have completely different accounting rules, they might help you comply with those rules, or provide assurance and auditing services to ensure you are operating correctly.
We could go on and on here.
But ultimately a CPA helps you manage the money in your business while complying with government regulations that your business may be subject to.
What Can a CPA Do That Your Bookkeeper or Tax Preparer Cannot?
Your tax preparer cannot represent you in court on a tax matter, a CPA can.
Your accountant or bookkeeper cannot provide assurance, or in other words, certify that your financial statements are accurate and complete. A CPA can.
Your accountant or tax preparer does not have to keep up with new accounting or tax laws that may affect your business.
A CPA is required to do continuing education each year in order to keep their license status active.
These are just a few of the major things that separate a CPA from the average accountant or tax preparer.
Who Needs Certified Public Accountants?
The reasons differ based on your circumstance.
For taxes, a lot of people try to do their own taxes these days or use the cheapest provider. And for a lot of people with very simple finances, that’s completely fine.
But if you find yourself trying to do this when you own property, multiple streams of income and investments, and businesses, it’s best you seek the best professional for the job, a CPA.
One missed tax deduction or tax credit could be the difference in you paying thousands of dollars in taxes.
That’s much more than the few extra hundred dollars a CPA might cost you.
Not to mention that a CPA normally doesn’t just do tax preparation, which is synonymous with a server taking your order at a restaurant.
They also tax plan which means they can help you craft a plan to actually lower your taxes legally through the tax law.
On the accounting side, many small companies might choose their own books. But ultimately, you have to ask yourself, is it really worth your time?
You should probably be out there getting your Jeff Bezos on, not trying to figure out the best way to classify something you bought in QuickBooks.
This is why many businesses decide to outsource their bookkeeping to a bookkeeper. And bookkeeping services are a great option.
Though, even the best bookkeepers cannot provide the level of assurance that a CPA can.
So you may decide to use bookkeepers for recording your transactions and using a CPA to review your financial statements for accuracy before you file your taxes.
We see simple mistakes all of the time, like classifying the interest on a loan as a liability when it’s really an expense.
So there you have it, folks. That’s everything you need to know about a CPA.
So here’s a quick recap of this post. Today, we answered the question “What is a CPA?”.
A CPA, which stands for Certified Public Accountant, are trusted advisors that help businesses with all sorts of business matters that have financial implications.
Then we talked about what a CPA actually does.
The role of a CPA varies based on the company. They can help public companies report to shareholders. They can help small businesses with new business challenges.
Then lastly, we talked about who needs a CPA.
Anyone who needs assurance, auditing, tax advice, or just the best hands-on finances should deeply consider hiring a CPA.
And also if you need a CPA, we offer small business CPA services at LYFE Accounting so don’t hesitate to contact us today.