Me vs. the robots (a QuickBooks Online story)

I’m continually taken aback by the way QuickBooks Online does my thinking for me. As a self-taught bookkeeper/accounting person* who’s still learning, I prefer to do everything by hand and avoid shortcuts. QBO automates certain transactions, taking care of them behind the scenes in a way that makes the process invisible. This is something it’s always done, of course: I’m sure the first accountants to use it were horrified by all the tasks it automated (posting to journals?!). That’s always been the bargain with QB and QBO: give up control (autonomy, privacy, your own thought process) and let your life be made easier. In fact, it’s the bargain we make with every digital device and platform we use now.

For example, here’s how QBO writes off invoices: It applies a 100% discount to the invoice, decreasing Accounts Receivable and increasing Bad Debt. Although this is the end result that I, too, would arrive at, I would do it by means of a journal entry, not invisibly. It took me some time to puzzle out what QBO was doing.

Today I noticed another “advance” in this area. A customer, Suzie, who is billed monthly, always in the same amount of $135, made a $405 payment in September. Not having gotten a chance to put my hands in the books properly until today, I planned to sort through her account to find out why she overpaid, contact her, and apply the remainder as she desired. But QBO had already done everything for me. Although the deposit was made in September, the payment record shows that payment has been applied to October and November’s invoices as well. Thus, there is a temporal impossibility in the books: Suzie’s payment of September 4th paid her invoices of October 1st and November 1st as well.

What would I have done? I would have looked at the record, realized that Suzie was paying three months in advance, verified this with her, and applied the credit on her account to October’s invoice with an October date, then to November’s invoice with a November date. That’s two payment transactions plus a phone call. Am I glad I was saved all that time so that I could write this blog entry instead? I can’t decide.

* Yeah, I’m really not just a bookkeeper anymore, I’ve realized.

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.

Non-GAAP financials: don’t try this at home

Another Sunday at the local café, another used New York Times picked up for free. Writing in Business Day, Gretchen Morgenson reports on the increasing tendency of public companies to use “fantasy math” in their financial reports:

According to a recent study in The Analyst’s Accounting Observer, 90 percent of companies in the Standard & Poor’s 500-stock index reported non-GAAP results last year, up from 72 percent in 2009.

Regulations still require corporations to report their financial results under accounting rules. But companies often steer investors instead to massaged calculations that produce a better outcome.

What are these “massaged calculations”? Morgenson explains: financial reports prepared according to GAAP—generally accepted accounting principles—must show all expenses, which of course reduce the bottom line. But financials prepared outside of GAAP can leave off any number of costs, making the company’s performance look better. In other words, non-GAAP financials can omit anything management finds it too inconvenient to include. “Thirty companies in the study generated losses under accounting rules in 2015,” Morgenson writes, “but magically produced profits when they did the math their own way.” For the 380 companies in the study, non-GAAP income was up 6.6% from 2014—but GAAP income for the same companies was down almost eleven percent.

What does this mean for small nonprofits that will never darken Wall Street’s doors? It’s just one more reminder that GAAP should be your religion. Following GAAP means that your financials will be consistent, reliable, and as accurate as possible. GAAP keeps your organization accountable and transparent. Mind the GAAP!

Bookkeeping apps for folks

Boston’s Bay State Banner, a venerable Black newspaper, has recently introduced the slick Boston Biz magazine. The March 2016 issue included an article called “Manage Your Money” by Martin Desmarais. It listed the following apps:

  • Expensify: “streamlines the process of tracking and organizing employee expenses.”
  • Indinero: “a platform that takes care of all accounting, payroll and tax needs” for small businesses.
  • Wave: “a popular accounting, payroll and invoicing app with services that cover all of a small business’s finance needs.”
  • FreshBooks: “allows small businesses to create online invoices, capture expenses, record times on a job and track cash flow and expenses.”
  • Zoho Books: “the platform and its mobile app version cover all aspects of a business, from sales and marketing to email collaboration and even hiring.”

As a bookkeeper, I think granularly and in technical details, and I think about GAAP. Therefore, I am not crazy about working on these platforms. I had a bad experience with Wave which did not allow me to reconcile bank accounts the way I wanted to and in general proved to be the wrong path for me and my client. These new finance apps were not created for bookkeepers. If you want me to keep your books, I will encourage you to create a QuickBooks Online account and add me as an “accountant.” If you really want me to work in one of the above apps I will try, but I probably won’t be happy.