How Thoroughly Do You Examine Your Clients’ Transactions and Expenses?
Introduction
Let’s delve into a topic that’s both crucial and sometimes challenging: how meticulous should you really be when reviewing your clients’ transactions and expenses?
Transitioning from Corporate to Small Business Accounting
Having transitioned from a structured corporate Accounting environment to focusing on small and midsize business Bookkeeping, I’ve found the change in approach to be significant. In corporate settings, every receipt or invoice was scrutinized by a team, backed by strict company policies to ensure accuracy and consistency. However, in the realm of smaller businesses, the approach to handling receipts and expenses tends to be more relaxed. Discussing this on Reddit feels more comfortable to me given the anonymity, as opposed to Facebook groups where posts can easily be traced back to you.
Handling a High Volume of Transactions
Consider a client who processes 200-300 transactions monthly, involving gas stations, travel, restaurants, Home Depot, Amazon, and more. Expecting detailed information for each receipt might be unrealistic. I’ve noticed that some bookkeepers categorize all Amazon purchases under ‘supplies’ and continue that pattern. Efforts to send spreadsheets for clarification often go unanswered, possibly leading clients to think I’m out of the loop for not immediately recognizing a restaurant charge as a meal. Tools like Keeper exist, yet they require clients who are willing to engage consistently.
Seeking Practical Approaches
What strategies do you consider most effective? Do you establish clear boundaries between business and personal expenses, letting the client take the responsibility? Is there a materiality threshold below which you don’t probe further? My experience in corporate Accounting makes this challenging for me. I’ve heard some suggest leaving it to the tax accountant, but many state it’s not on them to scrutinize obviously reasonable books.
Balancing Questions and Assumptions
There’s also the cautionary tale of a Bookkeeping intern who “got in trouble” for asking too many questions. How do you decide the extent of inquiry versus assumption?
Conclusion
I’m curious to hear your insights. How do you balance thoroughness with practicality when reviewing client transactions and expenses?
One response
When transitioning from a corporate Accounting environment to a more flexible role as a bookkeeper for small or midsize businesses, it can indeed be challenging to adjust your approach to managing clients’ transactions. Here’s a strategy to balance thoroughness with practicality, which may help you navigate this shift:
1. Establish Clear Expectations
When you start working with a client, it’s crucial to have an initial discussion on how expenses will be reported and documented. You might consider covering the following:
Business vs. Personal Expenses: Provide a clear outline of what constitutes business expenses and what counts as personal. Encourage your client to maintain separate accounts or payment methods for personal and business transactions to simplify this process.
Receipt Management: Set expectations on the types of receipts and documentation you require. Recommend apps or tools that make it easy for them to scan and send receipts as they accumulate expenses.
Regular Meetings: Schedule regular check-ins to review the general state of their accounts. This helps catch any misclassifications early and allows for adjustments without waiting for a year-end catch-up.
2. Materiality Thresholds
Given the high volume of transactions and limited time, it makes sense to adopt a materiality threshold approach:
Set a Monetary Threshold: Decide a figure below which you won’t probe into individual transactions unless something feels off (e.g., $50 for routine expenses). This allows for efficiency without compromising the accuracy of larger or unusual transactions.
Categorical Thresholds: Some categories like “Office Supplies” or “Travel” can inherently be more scrutinous. For instance, you might decide to review transactions over $100 for these categories more carefully.
3. Use Technology Wisely
Leverage available technology to streamline the recording and verification process:
Accounting Software: Utilize tools like QuickBooks or Xero, which can automate categorizing transactions to a degree. Use these tools’ bank feed features to facilitate easy importing of transactions.
Expense Management Tools: If your client is open to it, tools such as Expensify or Receipt Bank can simplify receipt capture and tracking.
4. Documentation
Maintain a well-documented scope of work that outlines the boundaries of your responsibility. This could be set at the commencement of your business relationship: