A visit to the dermatologist

My dermatologist, whom I see every December, is a soft-spoken, businesslike man in his middle years. His sole concession to conviviality is usually a Warner Bros. holiday necktie. Today, however, in his usual low-key manner, he asked several questions about what I do for a living. Looking at my back, he said, “What do the debit and credit mean?”

Me: “That’s the basic transaction in accounting. You debit something and credit something else, whenever you do anything.”

He: “And what made you decide to tattoo those on your back?”

Me, honestly: “I love bookkeeping, Doctor. I really, really do.”

I had had some coffee.

Nuclino makes me happy

I have a documentation compulsion and always have. When I started out as a bookkeeper, I wrote my own manual for every job and kept them in binders. (I called them Econo-Manuals, in honor of the first such manual I created—on green index cards, if memory serves—for a college job.) After losing one of those binders in a coffee shop, I was sufficiently spooked to move online. I used Wikispaces, a site which is now closing, for a number of years; on being informed of their closure, I was plunged into a panicked search for another wiki-like site on which to store my stream of instructions, thoughts, queries and other self-talk. I tried Zoho Wiki but was frustrated by its hit-or-miss formatting and homely appearance. Did I mention that I also have a formatting compulsion?

Then I lucked on Nuclino, which I am loving. It’s super-easy to use, easy to organize information on (with?), and handsome to look at. And they just came out with a Mac OS app! I’m so happy! Try it and let me know what you think. Then we’ll talk about Trello.

“You cannot say yes or no until you touch the books”

A very wise woman said this to me last week. It’s a great reminder that, as freelancers, we have the power to turn down gigs. Awesome little org doing terrific work, with a QuickBooks file that hasn’t been updated since 2015? You can say no. People you dig, a mission you love and a balance sheet so messy it makes your heart sink? You don’t have to say yes. Reflect on your personal capacity and your stress level. Do you want to be a hero, or do you want to have a personal life? It’s all up to you.

I also liked the tactile image she used—”until you touch the books.” I’ve said to clients, “I can’t answer that question because I haven’t really had my hands in the books.” Sometimes I wiggle my fingers for added effect.

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.

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.”

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.