A guide to how we code our clients transactions, with specific examples

We only have access to the client’s bank and credit card statements, so we code all of the transactions directly based on that information. We use our best guess when booking transactions, and it is up to the client to review and let us know if something needs to be changed. We’ve created a very simple system for this, as well as provide detailed instructions ( click here if you would like to see them).

If you require more detail, want transactions to be changed, want accounts added, etc., we suggest consulting with the client and letting them know so they can make the change. We are aware that our codings are not always correct, or that “Insurance” for example should be broken out into the different types. But we simply do what we can with the information on the bank statements and rely on the client to fill in the gaps based on their unique knowledge of the business.

Even better, we encourage you to get involved with the client in reviewing their transactions and making changes. Our system allows for you and the client to both be accessing and editing the document at the same time! To get started on this, ask your client to send you the link to their Dashboard ( click here to view our Sample Company Dashboard). We give the client full editing capabilities, so don’t be surprised to see things potentially coded strangely. But to designate any edits, we put the words “Per Client” in the memo, which should help you understand why something is coded where it is.

Specific Questions

Why are the Payroll & Subcontracted Labor expense accounts combined?

Without requesting and booking every payroll report (which would be too time consuming and costly to the client), we have no way of knowing if when someone receives a check it is a payroll check, a reimbursement check, a subcontractor, etc. So we code everything to a combined account called “Payroll & Subcontracted Labor”. Then we ask the client to review this account and make any changes if necessary ( click here to see those instructions). We suggest requesting the year end payroll reports from the client if you would like to make a once a year adjustment to break this number out (for instance, breaking out Payroll Expense into Officer vs. Office Salaries). Feel free to provide us with the Adjusting Journal Entry so we can reflect it on the client’s books.

Why do you have an expense account called “Office Supplies & Equipment? Are you capitalizing Fixed Asset purchases?

Yes, we code most payments over $1,000 that look to be Fixed Assets to the Fixed Assets account on the Balance Sheet. We suggest the client review these codings and correct us if necessary. We don’t break out “Fixed Assets” into automobiles, furniture, etc. because we leave it up to you, the CPA, to classify them according to their proper useful life. The “Office Supplies & Equipment” expense account represents supply and minor equipment purchases with a useful life less than one year.

Why are you coding all Contributions & Distributions to an Equity account called “Personal” instead of creating a Shareholder Loan?

In the Equity section, we have an account called “Personal - Owner”. This represents owner or stockholder contributions and distributions. We’ve labeled it this way so that it is more clear to the client and so that it is more consistent across all companies, regardless of the company type. We code all contributions and withdrawals to this account instead of the loan account by default. We know that there are times when the transactions should be considered a loan, and times when it should be a contribution or distribution. Feel free to make any necessary re-classes and provide us with the Adjusting Journal Entries.

Why are you booking Inventory purchases directly to Cost of Goods Sold?

We code all inventory purchases to COGS. Since we aren’t involved in the inventory management of our clients, we don’t know when inventory is sold, and therefore cannot be constantly moving the purchases from Inventory Asset to COGS. So we code all inventory purchases to COGS. We suggest that at the end of the year you request the value of your client’s inventory on hand as of 12/31, then make an adjustment between Inventory Asset and COGS to reflect the proper asset balance.

Why are you booking Sales Tax payments to Income?

Since we aren’t involved in the client’s sales system, we don’t know how much tax is being collected. Since we code the entire bank deposit to Income, we know that it includes the Sales Tax collected. Therefore, we code the Sales Tax payments against Income to account for this. We suggest that at the end of the year you request the value of your client’s Sales Tax Liability as of 12/31, then make an adjustment between Sales Tax Liability and Income to reflect the proper liability balance.

Why are certain balances on the balance sheet missing, incorrect, or not updated?

Please  click here to read an article that talks about the services we do not provide. Therefore, we do not have access to current balances for those services and items, such as payroll and sales tax liabilities. We mainly take responsibility for making sure the bank and credit card accounts are reconciled. We suggest reviewing any other balances on the Balance Sheet with the client to ensure accuracy. Feel free to make any Adjustments necessary and provide them to us if you would like us to book them.

What are all of these transactions coded to the “No Check Image” expense account?

We code checks to this section if we are not able to view the check images on the clients bank statements. We then ask the client to please provide the missing information so we can properly code the transactions. If you still see checks coded to the “No Check Image” expense account, it means that the client has not gotten us this information yet.

Why do you have a category called "Payment App Withdrawals"?

Using any Payment or Cash Transfer Apps for business (such as Venmo, Apple Pay or Google Pay) is tricky. We discuss the specifics in our article Why you shouldn't be using Cash Transfer Apps for business transactions. So to make the best of the situation, if we see any deposits into your business bank accounts from a Payment App, we assume it's business related and put it to Income. And for any withdrawals (which are basically a transfer of funds from your bank account to the App), we put it to Payment App Withdrawals Expense, since we don't have the detail of that withdrawal. Ideally we would have the detail, but many of these apps do not have statements, or specific details about the transactions (again, since they aren't meant for business). If you want us to be more specific in how we categorize these transactions, you can send us notes or statements about the specifics of the transfers, and we can try to break that out. Venmo, for instance, provides a statement if you log in through their web portal (not the app). Google Pay does as well, but it's a bit tricky. You have to go to Payment Methods, then click the word Statements listed under Google Pay Balance.

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