How to pull cash-flow actuals

I like to do a monthly cash-flow projection for every client. (I don’t always, but I like to.) It’s really important to keep an eye on cash in small organizations, because a cash emergency can creep up and jump out at you like in a horror movie, except without any warning music. I’m sure that very soon you’ll be able to read all about that on my Cash Vs. Accrual page. Meanwhile, here’s how to pull cash actuals out of QuickBooks.

  1. Run a balance sheet for the closing month.
  2. Double-click on the bank total to drill down to a transaction report.
  3. Export that report to Excel.
  4. Copy the existing tab into a new one and format the data in the way that’s most comfortable for you (I’m Calibri 12 point, no bolds, 125% zoom). Delete the balance colum. Then sort it by transaction type.
  5. Delete all transfers, as long as they total zero.
  6. Open up the Cash Categories document you have previously prepared. As the name suggests, this lists the categories you want to show on your cash-flow report/projection. For example, under Cash In you might have Contributions, Program Service Revenue, and Grants; under Cash Out, Payroll first followed by all the expenses you want to differentiate.
  7. Proceeding from top to bottom down your list of transactions, copy and paste the appropriate cash category over the split field. You’re probably going to have to go back to QuickBooks to investigate individual deposits or anything that actually says “Split” in that column. If your organization does bill payments (instead, that is, of just recording expenses or checks), you’ll need to go back to QuickBooks to find the original expense account for those, too. Unless you know it off the top of your head!
  8. Sort and subtotal the finished list by Split.
  9. Hand-populate these totals in your cash flow.

Bonus tip. If you’re anything like me, you’re going to end up cutting-and-pasting over one of your Cash Category lines in a frenzy of categorizing actuals one day. Protect the sheet to avoid this!


The beauty of a payroll advance

I love my work. Best of all is when a situation that’s potentially confusing in “real life” gets boiled down into a single elegant journal entry in QuickBooks.

Say you’re working with a very small organization (our favorite kind!) with only two employees. One of these employees has asked for a $1000 advance on their payroll. The advance was approved by the board, and the employee is going to pay it back with deductions of $50 in subsequent paychecks. But nobody involved knows exactly what to do.

First, it’s best to create some kind of memo laying out the advance and its repayment terms, to be signed by the employee and their supervisor (here, probably the board chair). Next, call your payroll processor. Ask them to generate a paycheck for the employee for the gross amount, no payroll taxes withdrawn. Otherwise, the employee will be taxed twice on this thousand dollars—once when they receive the advance, and once again as they pay it back in increments of fifty dollars (each of which is deducted from the net paycheck after taxes).

Now, how do you book the advance? It would be incorrect to show it as a normal salary expense, because it represents an advance on salary that hasn’t yet been earned. It’s moving forward in time, so to speak, so it is more correctly shown as a balance-sheet transaction, along the same lines as a prepaid expense. Record it with a journal entry debiting (increasing) an Advance Payroll asset account and crediting (decreasing) your cash. If it’s part of a larger payroll, you can quite tidily tuck this into your usual payroll entry by adjusting the credit to cash—your processor’s report will give the correct amount—and adding in the Advance Payroll debit.


Recording a barter transaction

In the world of cooperative/radical/generally crunchy bookkeeping, you may find yourself wondering how to post a transaction that involves barter. Because until the revolution comes we still need GAAP.

Say for instance that Topher is dog-walking for web designer Merrie while Merrie designs Topher’s website. They agree that Topher will barter for the web design. Merrie invoices Topher for design services amounting to $200. In the meantime, Topher has provided $200 worth of dog walks, for which he invoices Merrie. You are Merrie’s bookkeeper. The name of the dog is not pertinent, but is Peppermint.

  1. Create an asset account called Bank Clearing. If possible, set this up as a “cash” or bank account in the general ledger.
  2. Post Merrie’s invoice to Topher. Two hundred dollars is thus recorded in revenue.
  3. Post Topher’s bill to Merrie. You have thus recorded a $200 expense.
  4. Pay Topher’s bill, using Bank Clearing instead of the usual cash account. This clears the liability from Accounts Payable and creates a negative ($200) in Bank Clearing.
  5. Receive a payment against Merrie’s invoice, again using Bank Clearing instead of cash. This clears the receivable and zeroes out Bank Clearing.

The fun of this comes when you are bartering your own bookkeeping services and therefore have to run through all of the above steps twice—once in your client’s books and once, in the other direction, in your own.

Depreciation vs. amortization

Taking a break from audit prep to note that depreciation is for tangible assets and amortization for intangible. Per Investopedia:

Amortization usually refers to spreading an intangible asset’s cost over that asset’s useful life. For example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved with creating the medical equipment is spread out over the life of the patent, with each portion being recorded as an expense on the company’s income statement.

Depreciation, on the other hand, refers to prorating a tangible asset’s cost over that asset’s life. For example, an office building can be used for many years before it becomes run down and is sold. The cost of the building is spread out over the predicted life of the building, with a portion of the cost being expensed each accounting year.

A small point, perhaps, but a useful one to know.

Those new accounting standards!

Last August, the Financial Accounting Standards Board issued a new standard on not-for-profit financial reporting. It’s super-technical (which is why Cathy Keeps Books hasn’t gotten it together to comment until now). But bookkeepers should know the following:

  • The new standard will affect financial statements for fiscal years 2018 or later (specifically, it covers fiscal years that start after December 15, 2017).
  • It updates the reporting of restricted funds, investments, and cash flow.
  • Under this standard, the distinction between time-restricted and purpose-restricted funds is going away.
  • Board-restricted funds are also no longer a thing.
  • The standard requires “enhanced disclosures” about investments and liquidity.

According to the published update (click accept), “The currently required distinction between permanent restriction and temporary restrictions has become blurred by changes in state laws that diminished its relevance and rendered that distinction less useful.” The only classes in restricted equity will now be Net Assets With Donor Restrictions and Net Assets Without Donor Restrictions.

Here’s a screenshot from the FASB’s nonprofit portal:


Other resources: AICPA coverage here, here and here. And AAF CPAs has some blog posts and a webinar.

New I-9 form

This is a little scary, but the government has rolled out a new I-9 form. The I-9 is a form you need to sign a new employee up for payroll. Or, to quote Citizenship and Immigration Services, “Form I-9 is used for verifying the identity and employment authorization of individuals hired for employment in the United States. All U.S. employers must ensure proper completion of Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens.”

Okay, so it’s only scary if you have a default paranoid style like mine. Which, to be fair, is not a bad style for a bookkeeper.

Internal controls when you are very small

CKB works with some very small nonprofits. Very small as in there is one employee and Cathy. Even if—perhaps especially if—your org is super-wee, you need to have as many internal controls in place as possible to keep things from going haywire. An internal control is a process for handling money that helps protect your organization from fraud, theft, abuse, and other bad things. Blue Avocado, an excellent site for nonprofits that’s included on our Links page,  offers the following thoughts on how teeny-tiny organizations can maintain basic internal controls:

  1. Set the control environment (make sure people know there are policies that must be followed).
  2. Define clearly who is responsible for what.
  3. Physical controls (lock it up).
  4. Always have two people count cash.
  5. Reconcile your bank statements!

Read a detailed explanation of each point, plus additional notes on payroll and checks, from Carl Ho at Blue Avocado.

UPDATE: The American Institute of CPAs has a good and related take: “4 Critical Reasons Startups and Smaller Organizations Need Internal Control.”

That 1099 deadline

Worrying about 1099s already? If, like Cathy Keeps Books, you subscribe (or have been subscribed to) various accounting-related e-mails, you may have seen something like this:


This one came from Paychex. Previously, the forms were always due to recipients (your contractors) at the end of January—but the government reporting copy, the 1096, was due at the end of February, or in March if you e-filed it. Starting with tax year 2016 (that is, with the forms you file at the start of 2017), that government deadline will also be the end of January, for both paper and e-filing. By the way, the same applies to W-2s and their associated W-3.

I’ve never understood why there was a month allowed between recipient and IRS filing. For a bookkeeper, the biggest risk is screwing up on recipient forms; you can always amend your 1096, but if you get a contractor’s payment wrong on her 1099, she’ll be pissed. So this deadline change is no big deal to me.

New overtime rules

UPDATE: The implementation of this rule has been delayed indefinitely.

If you use ADP’s payroll service, you’ve been getting a lot of updates about upcoming changes to overtime rules. Now they’re here! These rules are good news for workers, in my opinion. Briefly, where an employee previously needed to make only $455 per week to qualify for exempt status (a worker is “exempt” when they are on salary, e.g. not eligible for overtime; there are several other criteria involved as well), they now need to make $913 a week. If you are paying your exempt employees less than $913 a week, you need to check yourself! Raise their salaries or reclassify them as non-exempt. The argument that this change will have a negative impact on small businesses and/or nonprofits holds no water with Cathy Keeps Books. You knew you were on a progressive site when you got here.

Read more about the new rules here.

Edit: Additional links have come my way from CNN and the Department of Labor itself. And here’s the DOL’s detailed guidance for nonprofits.

Donor acknowledgement letters

Useful bits and bobs come to you through CPA firm e-mails sometimes. Here’s an article from Clifton Larson Allen called “Donor Acknowledgement Letters: A Guide For Charitable Organizations.” Sounds good! In tiny nonprofits such as CKB assists, a bookkeeper might very well find herself asked about these letters—or asked to write one. According to CLA, a donor acknowledgement letter must include:

  • Organization’s full legal name
  • Date of donation
  • Amount of cash/check donation
  • In the case of a noncash donation, the charity should also provide a description (but not value) of the donated item(s)

A donation acknowledgement also needs one of the following:

  • Statement that no goods/services were provided in exchange for the donation and that the only benefit to donor was an intangible benefit, or
  • Description and estimated value of goods/services provided in exchange for the donation, and the net resulting deductible amount.

Read the full post.