Ep 21 – Onboarding a New Client


Episode 021 – Onboarding a New Client


Recorded: June 22, 2022

Released: June 23, 2022

Intro by Clive Castle

Sounds by ZapSplat


There is much to learn, and to set up, when onboarding a new client. In this episode, we talk about several different areas that you need to review and question before diving into your bookkeeping tasks. Find the transcript of this episode below.




Hello and welcome back to The Better Bookkeeper Podcast. I’m your host, Patrick Donovan, President of Cape May Counting House, a virtual bookkeeping firm.

It has been a little while since the last episode and that’s because my father passed away last month so a lot of things end up getting pushed to the back burner for a bit. So, I thank you for jumping back in and listening.

I am about to onboard a new client and I thought “why not do an episode on that process?” Whether you are doing the bookkeeping for your own business or you run your own bookkeeping firm, this could give you a different take on what you’re currently doing. You can find the transcript of this episode at thebetterbookkeeper.com/021. If there is something you feel that I have missed, please leave a comment on this episode’s page or on Facebook or Instagram @thebetterbookkeeper.

I’ll see you on the other side.


So, as I mentioned, I am about to onboard a new client and there are so many things that you need to tend to so that things run smoothly.

The first thing is to ask questions about the prospective client’s business such as the industry, where are they located, sales, who the owners are, how many employees, how is the business organized, and so on.

You also want to get a feel for the scope of the business. If you run your own bookkeeping firm you need to understand the scope of the business so that you can provide a reasonably accurate pricing quote. How many bank accounts, credit cards, and loans do they have? What do their fixed assets look like? Are they recording depreciation and/or amortization What about their accounts receivable and accounts payable? Each additional account means more work for you due to more transactions to record and reconciliations to perform. Speaking of reconciliations, find out when the last time their bank, credit card, and loan accounts were reconciled. Most of the time there is going to be some clean-up work involved so make sure that you factor that in. I would suggest that you actually charge for the clean-up separately AND require an upfront payment. My new client just started his business so a lot of things need to get set up before I can even begin any bookkeeping tasks. That’s something you should also be charging for – any setup that needs to be completed before you can start working.

You’ll also need to determine what services your client needs. Will you provide bill paying services, payroll processing, and/or preparing and submitting tax filings? If you don’t feel up to the task of providing certain services be sure to let your prospective client know and document everything that you will be doing and everything that you will not be doing so there are no surprises later. An engagement letter which spells everything out will prove very beneficial if there are any claims against you. Having errors & omissions insurance will also protect you but you’ve got to make sure that your engagement letter specifically spells out what you will and won’t do.

Next, look over their chart of accounts to get another perspective on the scope of their business. For many small businesses, due to low activity, some expenses can be grouped into existing categories. If the business is growing pretty rapidly and has a wide breadth of operations then a larger chart of accounts may provide them with some valuable detail.

The next step is to run some financial statements. You’ll want a detailed Income Statement, Balance Sheet, and Statement of Cash Flow at the bare minimum so that you can see pretty much most of the accounts and if anything looks unusual that you could inquire with the client about. You want to make sure that you don’t have negative amounts where there shouldn’t be because that means you have the beginnings of a mess. If you find something like that, you need to start digging further to see what else you uncover. Clean-ups take time and time is valuable so you really need to comb through the financial statements to see what you are looking at AND decide if it’s something that you want to take on.

Poring over the financial statements also gives you the opportunity to see if your client has been forthcoming with enough information regarding their business activity. If they have been withholding telling you important information then you may want to reconsider taking them on. Withholding information may be a habit of theirs and you could be setting yourself up for problems down the road when you need documentation or at the very least, answers.

You may want to calculate some financial ratios yourself to assess the health of your new client’s business. It would give you a baseline to work from and provide a little bit of insight into key areas of profit and expense.

You will also want to look over the lists for customers, vendors, and products and services. Look through them to see if there are duplicates that need to be merged and if there is missing information that needs to be updated.

Take a look to make sure their taxing authorities are properly set up in their accounting system and that the most current rates are being charged.

If you are going to be doing payroll, make sure that their payroll accounts are set up correctly and review the last several pay periods to get a feel for the flow. If you are going to be pushing the client out to a third-party payroll processor make sure that you’ve got a workflow hammered out so things don’t slip through the cracks.

Once you have gone through all of these areas, start working on creating workflows specific to your new client. Having things written down makes you conscious of how you will be handling each task and will minimize the times when you have to make judgment calls. Consistency will help create habits and make your more efficient at your bookkeeping tasks. Efficiency means that you are able to complete tasks more quickly, saving time, and making you more profitable.

After you have done all of this, and resolved any questions you may have with your new client, you should be in a pretty decent spot to begin your bookkeeping engagement.


That’s it for this episode of The Better Bookkeeper Podcast. If you enjoyed this episode please subscribe. It really helps us out. Also, don’t forget that we now offer online courses. Our first course, Bookkeeping Fundamentals, is already available and others are being developed. Please visit thebetterbookkeeper.com/courses for more information. Thanks and have a great day!

Just as a reminder, please check out our online courses at https://courses.thebetterbookkeeper.com. Thank you for listening!

For more episodes, please click here.


5-Minute Bookkeeping with Veronica Wasek

Accounting Coach

Accounting Tools by Stephen Bragg, CPA

Ep 20 – 6 Steps for an Easier Tax Time Next Year


Episode 020 – 6 Steps for an Easier Tax Time Next Year


Recorded: April 20, 2022

Released: April 20, 2022

Intro by Clive Castle

Sounds by ZapSplat


Few people like tax season. It saps your energy trying to locate your documents and research and fix discrepancies. In this episode, we explain 6 steps to help make tax time easier for you the next time around. Find the transcript of this episode below.




Hello and welcome back to The Better Bookkeeper Podcast. I am your host, Patrick Donovan, President of Cape May Counting House. Did tax time get you stressed this year? Have you now breathed a sigh of relief that it’s over? I know what you mean! This time of year can be very, excuse the pun, taxing. But in this episode I will provide some tips on what you can do going forward so that next year won’t be so bad. For a transcript of this episode, please visit thebetterbookkeeper.com/020. I’ll see you on the other side.


Tax time makes most people cringe. You would be hard-pressed to find many tasks that people absolutely loathe, but preparing for taxes is pretty high on that list. So what can you do to make this whole process less stressful for you next year. For you small business owners, you have your plate full of tasks to generate revenue, there’s little time to sit down for hours to organize, prepare, and complete your filing. What can you do?

Well, there are quite a few things that you can do.

#1: Follow any recommendations that your accountant has provided to you this year. Why wouldn’t you? Your tax professional has just gone through your financial statements trying to prepare your tax return. The suggestions they offer are coming from the person who just prepared your taxes. They may have seen some categories with amounts that don’t make sense which could be a result of transactions being entered incorrectly. They may instruct you to reclassify certain transactions so that your records match what is on the tax return they just prepared. There may have been instances where they needed a receipt and you had to search high and low to find it, taking you away from generating that revenue. Make it easier on them which means less stress and headaches for you.

#2: Review your tax payment frequency. Depending upon the amount of your tax liability, you may either have to pay monthly or quarterly. Your accountant would be able to help you with this. If your liability has changed, you may need to pay taxes at a different frequency. Review this and prepare to make any necessary changes so that you don’t get hit with penalties and interest.

#3: Keep your business expenses separate from your personal expenses. This cannot be stressed enough. You have got to keep your business expenses separate. If your books are a jumbled mess of business and personal transactions this is a nightmare for your tax preparer. You might think that you’re the business owner so in the end it’s a wash. NO! The business is separate from you, it is a distinct operation. If something is a legitimate business expense it needs to be on the company’s books as a business expense. If you go to the store because you need some personal items and the only card you have on you is the business card that is not a business expense. You still need to show it in the books but this transaction should be recorded as an owner’s draw because you are taking money out of the business to pay for a personal expense. It’s not a business expense. If you purchase something for the business on your personal card then make a journal entry and record the purchase as an owner’s contribution. It is best to never use a business card to pay for personal expenses and never use a personal card to pay for business expenses. Sometimes it happens but this should be the exception and not the rule.

#4: Get yourself organized. Look at your accounting software for features that allow you to attach documents and receipts. QuickBooks Online, for example, allows you to take a picture of a receipt with their app and upload it into QuickBooks. Just review it in QuickBooks Online and the receipt gets attached to the transaction. If you or your accountant has a question about that transaction later, the receipt is already attached. No more scrambling around trying to find a receipt from a year ago. The same goes for bills. At the bottom of your transaction screen, on the left side, you will see an area where you can attached a document. It’s there so use it and save yourself time and headaches later!

#5: Have procedures and workflows in place to make sure that transactions get entered into your accounting software properly and consistently across all applicable team members. Establish workflows so that everyone on your team knows how tasks are to be completed, who needs to approve what and when, and who to go to in the case of an issue. You don’t want to find out the day before you supposed to send your documents to the tax preparer that there is a major issue. Work to ensure that everything is done properly throughout the year.

#6: Make sure that your files are backed up. You should perform a backup of your files and save that backup on a different computer than the one you currently use. That could be on a server, a different server, or even in the cloud. Backups should be done on a frequency that makes sense to your business. If you don’t have many transactions then maybe a monthly backup will work fine for you. If you have a ton of transactions daily you should consider backing up daily. The reason being, if your computer crashes, you will need to restore the most recent backup which will contain all of the transactions that were entered up to the date of the backup. So if you haven’t backed up your data in months, you will have to reenter all of those transactions that occurred since your last backup. Some online account software automatically backup your data. Check with your software publisher to see how backups are handled and if there is anything that you need to do yourself.

Following these steps can make tax time less of a drain on your sanity and put you on a solid footing throughout the year.


Just as a reminder, please check out our online courses at https://courses.thebetterbookkeeper.com and get 50% off with coupon code HALFOFF. Thank you for listening!

Ep 19 – Fixed Assets and Depreciation


Episode 019 – Fixed Assets and Depreciation


Recorded: April 13, 2022

Released: April 13, 2022

Intro by Clive Castle

Sounds by ZapSplat


Fixed Assets and Depreciation go hand in hand. Fixed assets are the durable, long-living assets such as equipment, vehicles, building, and land that a business has at its disposal to help generate revenue. Depreciation is how we account for wear and tear over time and calculate the book value of a fixed asset. Find the transcript of this episode below.




Hello and welcome back to The Better Bookkeeper Podcast. I am your host, Patrick Donovan, President of Cape May Counting House. Thank you for joining me today as I talk about fixed assets and depreciation. If you would like to see the transcript of today’s episode please visit thebetterbookkeeper.com/019. You can also follow our Facebook page to leave a comment or question at www.facebook.com/thebetterbookkeeper.

One other thing, you may have heard our big announcement. If not, let me fill you in. The Better Bookkeeper has now expanded into offering online bookkeeping courses. Our first one is called Bookkeeping Fundamentals and you can learn more at courses.thebetterbookkeeper.com. If you are interested in taking the course, please use coupon code HALFOFF to get this course for 50% off.

Now, let’s get back to the podcast. As I mentioned, the topic of this episode is Fixed Assets which are basically durable, long-living assets such as office equipment, office furniture, company-owned vehicles, buildings, and land. These are sometimes classified under the heading of Property, Plant, and Equipment or PPE on the Balance Sheet. These are all considered tangible assets because they are physical assets. There are also other types of long-term assets that are considered intangible assets because there is no physicality to them such as patents, copyrights, trademarks, and goodwill. It’s important to know what they are and how to properly account for them in the bookkeeping records. So, let’s get into it.


Welcome back!

One of the items that a business has at its disposal to help generate revenue is fixed assets. This could be office equipment such as computers and printers, it could be the display cases or shelving in your retail store. Fixed assets could also be the machinery in your factory. Company-owned vehicles, buildings, and land also get included. Needless to say, these are not small-dollar items that you would normally just expense off when they are purchased. Fixed assets are usually high-dollar items that make up a sizable amount of your assets. Fixed assets get capitalized in the books, meaning that they get recorded at their original price and that price gets expensed at a predetermined frequency over time, called depreciation.

Entering fixed assets into the books is not difficult. Whatever costs are associated in acquiring those assets, having them delivered, installing them, and preparing them for use are included in the cost that you enter into the books. This is known as the historical cost. That figure will appear on your balance sheet because fixed assets appear on the balance sheet. Typically, fixed assets are added through a journal entry where you would debit Fixed Assets or if you have a more specific subcategory in your chart of accounts. The credit would be to cash or a bank account if you purchased them in full or to accounts payable if you will pay for them over time.

Now, as time goes on, these fixed assets begin to experience wear and tear. They are getting older and they may not work as efficiently as when they were new. Because their value decreases over time, that must be reflected in the books. That is where depreciation comes in.

IRS Publication 946 explains how to depreciate property so for more information please review that document. Depending upon the type of fixed asset in question, there are different time frames over which you can depreciate property. There are also different methods allowed for depreciating property and you should speak with your tax professional to decide which way is best for your specific situation. The Better Bookkeeper Podcast does not provide accounting, legal, or tax advice.

To be sure that you are allocating depreciation expense against your fixed assets, it should be recorded for each accounting period. You don’t want to allocate depreciation expense all at year end because that will show an entire year’s worth of depreciation all at the end of your fiscal year. However, that fixed asset depreciated over the course of the year so depreciation expense should be allocated in each period to give a more accurate rendering of this expense.

Each time that you allocate depreciation expense, it builds up in the Accumulated Depreciation account which is a contra account to Fixed Assets. This is important to remember because once you enter the fixed asset into the books, the value doesn’t change. Your fixed assets will show the historical cost. If depreciation is never charged then 10 years from now, the value of your fixed assets will remain the same. It is the contra account Accumulated Depreciation that will offset the value in Fixed Assets and allow the calculation for Fixed Assets, net of depreciation. This will show the book value of Fixed Assets (Historical Cost – Accumulated Depreciation). So you really need to stay on top of your depreciation to make sure that your Fixed Assets are not overstated. If you don’t allocate depreciation, key metrics that investors and lenders look at will be skewed and that could cause a liability for you or even get you turned down for a loan.

One more thing. We have been talking about depreciation for tangible fixed assets. In the introduction to this episode we also mentioned intangible fixed assets such as patents and copyrights. These basically get handled the same way but we don’t depreciate these assets per se, intangible fixed assets are amortized. For this too, review IRS Publication 946.

And that, is that. I hope that you found this episode about fixed assets helpful. I also hope that you will make use of it in your business or that of your clients to provide additional value. In the end, that’s what it’s all about, the value you bring to the table.

Just as a reminder, if you are interested, please check out our online courses at courses.thebetterbookkeeper.com and get 50% off with coupon code HALFOFF. Thank you for listening!

Ep 17 – Accounts Receivable


Episode 017 – Accounts Payable


Recorded: March 14, 2022

Released: March 14, 2022

Intro by Clive Castle

Sounds by ZapSplat


Accounts payable are the bills that you owe to creditors, suppliers, vendors, etc. and will pay at a later date. Scrutinizing each bill for accuracy shows that you are a good steward of your business’s financial resources. Find the transcript of this episode below.




Hello and welcome back to The Better Bookkeeper Podcast. I am your host, Patrick Donovan, President of Cape May Counting House. Thank you for joining me today as I talk about accounts payable. If you would like to see the transcript of today’s episode please visit thebetterbookkeeper.com/017. You can also follow our Facebook page to leave a comment or question at www.facebook.com/thebetterbookkeeper.

As I mentioned, the topic of this episode is Accounts Payable which are the bills that you owe to vendors, suppliers, and contractors. It can also include money that you owe on bank loans or liabilities that you owe but haven’t paid yet like utilities or sales tax or payroll taxes. Just like with accounts receivable from our previous episode, properly managing your accounts payable can also help improve your cash flow. So, let’s get into it.

I’ll see you on the other side.


Welcome back! In the intro I explained that accounts payable is money that you owe to suppliers, vendors, bank loans, tax liabilities, utilities, among other things. When you get a bill but will pay it at a later date, you will record it in your accounting software as accounts payable so that you will be able to keep track of what you need to pay out. If you are using the cash basis for your accounting you would not use accounts payable. Hopefully, you are using the accrual basis which means you will be entering these bills into your software.

The first step in managing your accounts payable is to actually have a system in place for managing your accounts payable. If you have multiple team members in your business there should be a process for receiving and entering a bill, verifying its accuracy, storing all source documents, and a process for approving the bill for payment. Within this process is what is called a three-way match where you match the purchase order to the receiving report to the vendor invoice. Any discrepancies should be addressed and resolved immediately.

Verifying that what you need to pay is exactly what you owe is done by communicating with any individuals who were involved with these transactions. You also want to verify that the vendor is correct, the unit costs, quantities, and terms, among other things, are correct. Look to make sure that the bill hasn’t already been entered into your system. If you had a contractor provide services, speak with those team members who oversaw the contractor’s work. Was it satisfactory? Did they complete all their tasks on time, completely and correctly? If the bill is for inventory, check with your receiving department to see if they did in fact receive all of the product you’re being billed for. Was the inventory in satisfactory condition? If not, you should be requesting a credit or returning product for a refund to lower the amount you owe. If you received inventory that you can’t sell because it is of inferior quality but don’t return it, then you will be taking the loss instead of the supplier where the real responsibility lies. When it comes time for a business to be paying money out, you should be scrutinizing every bill for accuracy. Communication between departments is very important to determine if credits need to be requested from vendors.

Furthermore, the person who is entering the bill should not be the same person who is approving and remitting payment because this opens up the opportunity for fraud. Separation of duties is an internal control function that helps to eliminate bogus bills from being paid or bogus invoices to customers from being reported in an attempt to inflate revenues.

Next, you should review your accounts payable aging report. Similar to your accounts receivable aging report, accounts are broken into different buckets such as 1-30 days past due, 31-60 days past due, and so on. Identify the oldest accounts as those are the ones that should be prioritized to prevent unfavorable outcomes. If needed, create a spreadsheet to do some analysis or play out some different scenarios.

You could also review your Accounts Payable Turnover Ratio which is calculated by dividing your net credit purchases from vendors and suppliers by the average accounts payable for the same period. This tells you how many times during that period you paid your average accounts payable.

To find out how many days it takes you, on average, to pay your bills you would divide 365 by your accounts payable turnover ratio that you just calculated. Once you have calculated this, compare it to the terms you have with your vendors and suppliers. It gives you insight into how well you are meeting your terms and if improvements need to be made. Creditors may be willing to offer better terms to borrowers who pay on time which could save you money down the road.

Now that you have gone through your bills and verified that the amounts are correct and identified accounts that need immediate attention, it’s time to determine your ability to pay them. You should start asking some basic questions about your current financial situation like what is the balance in your bank account? What are your projected cash inflows over the next 30-45 days? You should also factor in how quickly people typically pay you and take into consideration slow payers, late payers, and no payers. (Expecting every invoice to result in a payment on time is unrealistic.) Ask yourself what are your projected cash outflows over the next 30-45 days to become current on your bills?

Are you experiencing a cash crunch and need to hold off paying some bills? Do you currently have past-due bills to pay? Are you being charged interest or late fees for them? Are you at risk of being sent to collections? How many seriously delinquent bills do you have that need to be paid immediately? Are suppliers or vendors threatening adverse actions such as halting shipments, pausing services, or even switching to cash on delivery? Making notes in your vendor accounts can help provide important details regarding who may be willing to wait a little longer and those who will absolutely not.

Are you in a good cash position? Perhaps you could afford to pay some bills early to take advantage of an early payment discount. However, you should also look to see if there are other opportunities that could provide a better return for your cash than the typically 2% discount you may receive for paying a bill early.

Once you have selected your accounts to pay, prepare them for approval according to your accounts payable management process. Do you have to submit an approval request, attach source documents, and provide a summary? Providing all of the necessary information to the person responsible for approving bills for payment makes the process more efficient. By this phase, any discrepancies should have already been identified and resolved. If you are printing out physical checks, review each one for accuracy. Make sure that the checks are legible, aligned correctly, and the fields are filled out with the appropriate information. Make sure that the checks get signed by the appropriate authorized signers. As a final step, you may want to send out emails to your vendors to update them that the checks are going out. This would be wise if you are sending out payments for very old accounts where vendors have already threatened adverse actions. This would cause them to hold off on proceeding or at least delay that action for a few days to make sure they actually receive the payment before proceeding.

If you did, in fact, reach out to any vendors, make sure to add a note into the account in the event you need to refer to it later on.

So, to be clear, there is more to managing accounts payable than just writing out a check and mailing it. You should be verifying that the bill is legitimate and accurate before even recording it into your system by performing a three-way match, then resolving discrepancies. Separate duties between team members to hopefully eliminate the opportunity for fraud. Review your current financial situation, including funds you are realistically expecting to flow into and out of the business over the short term. Identify accounts to be paid, prepare them for approval, and finally verify that checks are complete and accurate before sending out.

And that, is that. I hope that you found this episode about accounts payable helpful. I also hope that you will make use of it in your business or that of your clients to provide additional value. In the end, that’s what it’s all about, the value you add to your boss or your client.

Ep 14 – Generally Accepted Accounting Principles (GAAP) Part 2 of 2

Episode 014 – Generally Accepted Accounting Principles (GAAP) Part 2 of 2


Recorded: June 5, 2021

Released: June 5, 2021

Intro by Clive Castle

Sounds by ZapSplat


In the second installment of a 2-part series on Generally Accepted Accounting Principles, or GAAP, Revenue Recognition, Materiality, Conservatism, and the Full Disclosure Principles are discussed. These and other principles that were discussed in Part 1 provide a framework for bookkeepers when recording transactions and allows for comparability when reviewing financial statements of different companies.



Ep 13 – Generally Accepted Accounting Principles (GAAP) Part 1 of 2

Episode 013 – Generally Accepted Accounting Principles (GAAP) Part 1 of 2


Recorded: February 11, 2021

Released: February 11, 2021

Intro by Clive Castle

Sounds by ZapSplat


In the first of a 2-part series on GAAP, the Economic Entity Assumption, Going Concern, Cost Principle, Accrual Method, and Matching Principle are discussed. These and other principles to be discussed in Part 2 provide a framework for bookkeepers when recording transactions and allows for comparability when reviewing financial statements of different companies.



Ep 10 – What is a Balance Sheet Telling Me?


Episode 10 – What is a Balance Sheet Telling Me?


Recorded: December 15, 2020

Released: December 15, 2020

Intro by Clive Castle

Sounds by ZapSplat


In the second installment of the 3-part series on what the main financial statements are telling you, Patrick explains the Balance Sheet.


Ep 16 – Accounts Receivable


Episode 016 – Accounts Receivable


Recorded: February 25, 2022

Released: February 25, 2022

Intro by Clive Castle

Sounds by ZapSplat


Accounts receivable are the sales that you generated on account that your customers will pay at a later date. Managing your accounts receivable is crucial to the success of your business as it directly impacts your cash flow. Find the transcript of this episode below.




Hello and welcome back to The Better Bookkeeper Podcast. I am your host, Patrick Donovan, President of Cape May Counting House. Thank you for joining me today. If you would like to see the transcript to today’s episode please visit thebetterbookkeeper.com/016.

The topic of this episode is Accounts Receivable which are the sales for which you have not yet been paid. Poorly managing accounts receivable will inevitably result in cash flow problems down the road. Since every business needs cash inflow, accounts receivable is where we will focus today. I’ll see you on the other side.

Welcome back! If you have listened to previous episodes of this podcast you will notice that I am a big proponent of financial statement analysis. This should become part of your toolbox when it comes to providing value to your boss and/or your client, depending upon your situation. We will be touching on this later in this episode.

Now, let’s start at the beginning. Your boss or client needs to have a clearly defined system for extending credit. Specific criteria should be identified to qualify a customer for credit. You could also use screening services that will pull a credit report (as long as it is for a permissible purpose) and provide you with a summary regarding the creditworthiness of a potential borrow. It may be enticing to offer credit to every customer to boost sales but you must also consider that having loose credit policies will more than likely increase your chances of not getting paid. Each sale on account that does not get paid means you are taking a loss so it may be better to err on the side of caution and don’t implement policies that are too generous. On the flip side, credit policies that are too restrictive will cause you to lose out on a lot of sales. This is more an art than a science but it helps to have a conversation with a potential customer before extending credit, in addition to, a credit application.

While qualifying criteria is important, terms also need to be clear so that a customer knows their obligations to a T. How much credit will you extend, what is the interest rate, how will the monthly payment be calculated, will you set a minimum payment, when will the payment be due each month, what payment options do you offer (such as in-person, mail, on your website, or through your bookkeeping software)? You could even consider setting up an automatic payment plan but you must get this in writing, signed and dated by the customer. Your contract or credit agreement should also spell out any collection efforts should the account default. If there will be additional charges if an account goes to collection, that must be spelled out as well. Setting aside a block of time to go over this so that the customer fully understands and agrees to the terms is crucial.

Internally, there needs to be systems in place for collecting your accounts receivable. You will need to be assertive here, not rude, but assertive. The business has provided goods or services and expects to be paid. If your software allows it, set up email reminders to go out to customers a week or so before their payment is due, the day after the payment was due if it hasn’t been received (of course, change the verbiage you use because now the account is in default), and a few times thereafter in an attempt to cure the delinquency as quickly as possible. If a customer calls, be sure to take copious notes of what transpired, who spoke to whom, etc. This will aid you as you work through bringing the account current.

This takes care of the pre-sale activity. Now, let’s look at what happens after the sale.

So, to start, let’s do some analyzing. One of the key metrics you should be using to gauge the effectiveness of your collection strategy is to calculate your Days Sales Outstanding (or DSO) ratio. It provides you with how many days, on average, it takes you to collect from customers who have purchased on credit. Usually, you would calculate this on a monthly basis so that you can see whether you are improving from one month to the next. You don’t want to wait a year to find out you’re getting worse.

You will need to take some numbers from your financial statements to feed into this equation. The first is your average accounts receivable which you will calculate by adding your accounts receivable balance at the beginning of the period and the balance at the end of the period and dividing by 2. The next number you need will be the total credit sales you had during that same period.

So to calculate your Days Sales Outstanding, take your average accounts receivable for the period and divide it by your credit sales for the period. Then multiply that number by the number of days in that period. Then, compare this to the terms you offer. If your DSO is 38 days but your terms are 10 days, then you have a lot of work to do to remedy this. On the other hand if your terms are 30 days then you’re not too far off but could still use some improvement.

The next calculation will be the Accounts Receivable Turnover ratio. This is similar to Days Sales Outstanding but it looks at your accounts receivable from a different angle. For this, you will take your credit sales for the period and divide by your average accounts receivable for the period. This will give you a scope of your credit sales compared to your average accounts receivable. If this ratio increases from period to period it is telling you that you are making a larger portion of your sales on account compared to the average. The increase in accounts receivable should cause you to put a greater emphasis on reviewing your existing collection procedures because your cash flow can be negatively impacted if you don’t as you will be waiting for more of your sales to be converted to cash.

Now that you have done some analysis, where do you go from here?

At a bare minimum, an accounts receivable aging report should be pulled once a month, preferably, more often so that it doesn’t take a month before the next action is taken. This report will drop each sale into what is called a bucket. You will have one bucket for accounts that are current, one bucket for 0-30 days past due, one for 30-60 days past due, 60-90 days past due, and depending upon your software you may have one for over-90-days past due or 90-120, and then a final one for 120+ plus days past due.

What you need to remember is that the longer an account is past due the more difficult it will be to collect. The more time that has passed, people begin to forget details about the transaction, if there were issues with the product or service, with whom they spoke, and so on. This is why it is so important that you stay on top of your accounts receivable. It may give you a warm and fuzzy feeling that your sales are increasing because you are allowing people to take longer to pay you but if they never pay you then you have only worsened your financial situation.

So, with your accounts receivable aging report you want to focus on the accounts that are 0-30 days past due as this represents the lowest hanging fruit. Those accounts you will have the best chances of collecting but don’t forget the older accounts. Just know that you may be facing some sizable write-offs with accounts older than 90 days but that doesn’t mean you shouldn’t still work them. As you begin to start paying more attention to the accounts receivable you, ideally, want to minimize the chances of an account getting to that stage. It’s going to happen, for sure, but you want to keep that bucket as low as possible.

Any discussion about accounts receivable would not be complete if we didn’t discuss allowance for doubtful accounts and bad debts expense. Every business who sells on credit must face the possibility that some accounts will just not be collected which means there should be some sort of offset to accounts receivable. Otherwise, the accounts receivable balance will not be completely accurate in terms of what will actually be collected. Having this offset will give investors and lenders a bit more insight into the makeup of you’re A/R balance and be used to determine if that balance can really be trusted as an asset.

To use this allowance you would review your accounts receivable balance at the end of the month and make a guestimate of what you think would not be collectable. You would then make an adjusting entry to your books by debiting Bad Debt Expense by that amount and crediting Allowance for Doubtful Accounts by the same amount. In subsequent periods, you would review the accounts receivable balance, determine the amount that may not be collectable and make the adjusting entry to reflect that. Remember, the reason these adjustments are made is to reflect a more accurate amount of what will be collected and these adjustments should be made in the period in which the sales are made, hence why you are reporting an allowance for bad debt.

And that, is that. I hope that you found this episode about accounts receivable helpful and that you will make use of it to provide additional value to your clients.

Ep 15 – Your Role as a Bookkeeper


Episode 015 – Your Role as a Bookkeeper


Recorded: February 14, 2022

Released: February 14, 2022

Intro by Clive Castle

Sounds by ZapSplat


Understanding your role as a bookkeeping professional enables you to provide more value to your employer or client.




Hello and welcome to another episode of The Better Bookkeeper Podcast. I am your host, Patrick Donovan, President of Cape May Counting House. Thank you for joining me today. If you like what you hear, please consider subscribing so that you can be notified when a new episode is uploaded. If you would like to see the transcript to today’s episode please visit thebetterbookkeeper.com/015.

It has been a while since I added an episode because a unique opportunity presented itself that I could not pass up. I accepted a position with a local company where I was able to build some more experience working with the inventory side of a business. After about six months I was promoted to a co-manager of the department. I wrote several procedures to assist in training, documented some workflows, implemented a priority schedule and also created a departmental mission statement to help guide peoples’ decisions.

It was a great company to work for and they treated their employees very well but it got to the point where I had to make a decision. I decided that if I was going to put forth that level of effort, for me, I should be doing that to grow this podcast, my bookkeeping firm, and the nonprofit, Cape May Donates, that my partner, his brother, and myself operate.

With that being said, you cannot underestimate the value of experience. And that leads me to the topic of this episode, Understanding Your Role as a bookkeeping professional so let’s get into it. I’ll see you on the other side.


Welcome back! Being a bookkeeper is an essential role. Unfortunately, I feel that many businesses fail to appreciate the value that a bookkeeper or accounting professional brings to the table. Some businesses consider this role as just another cog in the wheel but there’s more to it than that.

The decisions that management makes is entirely dependent upon the accuracy of their financial records. A bookkeeper must have an intimate knowledge of the inner workings of the operation so that they can be sure that transactions are being categorized properly and that revenue is recognized at the appropriate time. There is a laundry list of items that must be accurately recorded or the integrity of the financial statements will be called into question.

The timeliness of updating the financial records is also something that is essential to the role of a bookkeeper. If it takes weeks for transactions to get entered into the accounting system then what use is it for management to pull reports because they won’t be complete. You certainly shouldn’t make business decisions when you don’t have all of the data.

Making yourself and the services you provide more valuable to your employer or,  if you run your own bookkeeping firm, to your clients is key to your longevity. You add value by being knowledgeable about the industry in which you are working for, understanding the nuances, and being able to benchmark performance against others in the industry. Providing insight into how your employer or your client is performing compared to others can be a boon to your reputation. This will help set you apart from your competition!

Having access to sensitive financial data comes with responsibility. The confidential information with which you are working should not be divulged to anyone outside of the company, unless you work for a publicly-traded company. However, even then you have to be careful that you are not providing information that could give away a company’s competitive advantage. Even within a company, only certain individuals should have access to financial reports to minimize that information getting into the wrong hands.

One thing that I believe bookkeepers should be providing more of is a basic analysis of the financial statements. After ensuring that all information has been entered into the accounting system, produce a basic financial statement analysis report for management. Analyze the income statement by providing ratios on gross profit, operating profit, and net profit margins.  Providing a vertical analysis of the breakdown of each item compared to net sales and then seeing how that compares to the previous period or year-over-year makes the financial statements come to life. Highlight some outliers such as significantly higher labor costs, or drastic increase in cost of goods sold, for example. By being knowledgeable about the industry you can narrow down specific metrics that would prove useful to management.

Analyze the balance sheet and provide the current ratio and if the company carries inventory, provide the quick ratio as a comparison. Provide the debt-to-equity ratio, show the amount of working capital and the total assets-to-total liabilities ratio.

And don’t forget the statement of cash flows. This statement can be a little confusing but by providing some insight from your analysis can bring clarity. Did the business not generate a positive cash flow from operations? That’s important to know! Was there a significant increase in fixed assets or equipment? What about financing that was brought into the business? Was it appropriately recorded and how does this impact management’s decisions going forward?

Doing these things can draw attention to some key items that may not be apparent if you’re just looking at numbers on a page. Financial statements tell a story and what better person to tell it than you, the bookkeeping professional!

So, in summary, be knowledgeable about the business and industry in which your employer or client operates. Stay current on changes within the accounting and bookkeeping realm so that you are categorizing transactions properly by subscribing to and actually reading accounting industry publications. And provide an analysis of the financial statements to help guide management’s business decisions.


Ep 12 – Year-end Considerations


Episode 012 – Year-end Considerations


Recorded: January 27, 2021

Released: January 27, 2021

Intro by Clive Castle

Sounds by ZapSplat


Year-end is very taxing (pun intended) for bookkeeping professionals. In this episode, Patrick touches on a long list of items that you should be checking to ensure your clients’ books are reflecting accurate information. Give your clients a 5-star experience!



Information about PPP loan forgiveness by QuickBooks (Intuit)