How Diligently Do You Analyze Client Transactions and Expenses?
Let’s Discuss This
How meticulous are you when reviewing your clients’ transactions and expenses?
From my experience in corporate Accounting, the procedures were thorough, with ample resources to scrutinize every receipt and invoice. Strict company policies provided clear guidance and safeguards in this process. Now, transitioning into Bookkeeping for small to midsize businesses, I sometimes find it challenging to adapt to a more relaxed approach regarding receipts and expenses. Discussing this on Reddit feels more comfortable for me than in Facebook groups where posts aren’t anonymized.
Imagine a scenario where a client processes 200 to 300 transactions monthly. These include gas stations, convenience stores, travel, restaurants, Home Depot, Amazon, and similar outlets. It seems impractical for them to provide details for every single receipt. I’ve noticed other bookkeepers simply categorize Amazon purchases as “supplies,” maintaining this practice consistently. My attempt to share a detailed spreadsheet with a client fell flat, likely perceived as unnecessary since it’s evident what constitutes meals at restaurants. Tools like Keeper exist, but their effectiveness depends on client willingness to participate.
What are your practical strategies? Do you delineate between business and personal expenses and trust the client to adhere to this distinction, effectively shifting the responsibility to them? Do you have a materiality threshold where minor expenses pass without question? My corporate accountant mindset wrestles with these relaxed practices. Some suggest leaving decisions to tax accountants, but I’ve encountered many who assert that scrutinizing books isn’t within their purview, as long as everything appears reasonable at first glance.
There’s also the concern of over-inquiring, which I read in a story of a Bookkeeping intern reprimanded for asking clients too many questions. So, how much should we question, and when should we make assumptions?
One response
When transitioning from a corporate Accounting environment to Bookkeeping for small or midsize businesses, it can indeed be challenging to adjust to differing levels of transaction scrutiny. In corporate Accounting, the focus is often on compliance, with stringent processes and checks in place. However, in a small business setting, flexibility and pragmatism can become necessary, primarily due to limited resources and varying client expectations. Here’s how you might balance these demands:
1. Establish Clear Expectations
Begin by setting clear expectations with your clients regarding transaction documentation. Communicate the importance of categorizing expenses accurately and the role it plays in financial reporting and potential tax audits. This can be addressed during the initial onboarding process or in a documented agreement.
2. Define Categories and Materiality
Business vs. Personal: Ensure that your client is aware of the importance of distinguishing between personal and business expenses. At times, this responsibility can be placed on clients if they have been informed adequately.
Materiality Threshold: You might set a materiality threshold below which transactions are not scrutinized as rigorously. For example, purchases under $25 might not require receipts, depending on the business’s nature. This pragmatic approach can save time and reduce client friction.
3. Focus on High-Risk Areas
Concentrate your detailed review efforts on high-risk or variable areas like travel and entertainment expenses, Amazon purchases (which could span multiple categories), and cash expenses, which are more likely to lack documentation. Regularly spot-check these transactions to verify their categorization.
4. Use Technology and Tools
Consider using Accounting Software that allows clients to upload digital copies of their receipts and invoices directly. Applications like Receipt Bank or Expensify can streamline this process and improve accuracy. Tools such as Keeper Tax can help automate some aspects of transaction categorization.
5. Regular Review and Feedback
Encourage a periodic review meeting with your clients. This could be monthly or quarterly, depending on the volume of transactions. Use this time to go over any questionable expenses and provide feedback on documentation and categorization.
6. Client Education
Sometimes clients don’t fully understand why certain expenses need more documentation. Investing time in educating your clients about the potential implications of poor Bookkeeping practices—like tax audits or inaccuracies in financial reports—can shift their perspective.
7. Balance Client Relations
It’s a fine line to walk between diligent Bookkeeping and overwhelming a client with requests for information. Remember