Updated: Aug 6, 2019
Many bookkeepers take the easy way out to reporting revenue and business owners are left scratching their heads, or even unaware.
There's no way around it, to own and maintain a business you need revenue. Revenue is the most important financial piece of a business because revenue helps you understand if you are charging enough for your services, when are your busy months, if your employees are producing enough, if you are receiving all the cash for all your hard work, etc.
Business owners don't usually care how you show them their revenue, they just want to see if they are making the big bucks. But if your bookkeeper takes the easy way out, this information can be skewed.
Below are the 2 ways revenue can be reported:
1. Cash Basis - Recognizes cash as revenue when cash is received in your bank account.
Example: Cash Basis does not keep track of who owes you for your services. Lets say you are a fitness center owner and you haven't received payment from one of your members in 3 months, yet they continue to use your services. You are wondering why your revenue is a little low, then you realize this member hasn't paid you!
The only reason your revenue was low was because you weren't keeping track of who owes you money, this is an error that can be corrected!
2. Accrual Basis - Recognizes any services you provide as revenue.
Example: You are a fitness center owner and every month on the first day of the month, you bill out to your members their membership fees. Using a separate Accounts Receivable system (examples provided at the end of the blog) to keep track of this billing, the system will recognize the services you provide to these members as revenue. You then can keep track of who still owes you membership fees throughout the month, follow up with them on delinquent bills, and keep track of every dime!
In the above situations, many bookkeepers use #1 because it's one less step and it's easier for them. The only way Cash Basis can work is if you automatically pull dues/bills from your members/clients bank account prior to providing them your services. This is a good business move, but doesn't work for all situations.
Bookkeepers providing services for their clients because it's easier is a HUGE pet peeve of mine. The bookkeeper is NOT taking extra time to understand what is the best interest of their client.
Business owners, make sure your bookkeeper is to providing the best services for you and your business! Please contact me if believe your bookkeeping services could be provided better.
Here are some examples of accounting systems that would work using the Accrual Basis of accounting:
Simple billing for a start up business:
Advanced billing for a larger business:
Accounts Receivable is included with the bookkeeping software:
Please reach out for any comments or questions!
Scott Gessner - Owner
Gessner Accounting Solutions