Bookkeeping questions are inevitable. As a bookkeeper, it’s important to NOT make assumptions. Whether you’re working on a client’s books, you’ve hired one, or you’re doing your own, questions are an important part of the process.
Asking clients questions can be uncomfortable for some bookkeepers. If you’re bombarded by questions from your bookkeeper, remember they’re on your team. When handling your own financials, asking yourself bookkeeping questions will assist you to stay on top of this task.
In this blog we’ll cover the four reasons why asking bookkeeping questions is essential to accurate entries. Your bookkeeper is key to a successful business.
Why Bookkeepers don’t make assumptions
I’m sure you have heard the modern proverb about what happens when you assume, right? It makes an ASS out of U and ME. That’s the last thing you want to have happen as a bookkeeper. Instead, we ASK QUESTIONS to get the facts.
If you’re a new bookkeeper, you might feel uncomfortable asking a lot of questions in fear you’ll “bother” your client. If you’re the client, you might wonder why all the questions — and you might actually be bothered. And the hardest of all is asking questions of yourself if you’re doing your own books. Do you know the right questions to ask?
In this article we’re not going to focus on what questions to ask, but why ask so many questions in the first place.
Here are the four reasons for bookkeeping questions:
Bookkeeping Questions Prevent Errors
Assumptions can lead to mistakes in the books. Asking questions helps us get accurate information and avoid costly errors.
For example:
Let’s say that Bubba’s Roadkill Cafe has an expense of $3,500 from a beverage vendor. Barbara Bookkeeper knows that once a year Bubba orders a large supply of soda cups, lids, and straws. It’s not usually this large, but she assumes he must have planned for the projected growth they discussed at the beginning of the year. She categorizes the expense under Cost of Goods Sold.
The outcome?
Bubba actually purchased a new soda machine, which is a fixed asset. This severely distorts the financials: overstating current period expenses, understating the Net Income, exaggerating COGS, and diminishing the Balance Sheet assets. This causes the profitability to look worse and the financial position to be inaccurate. The asset doesn’t get depreciated and impacts profitability metrics like Gross Profit and Taxable Income.
Barbara needed to ask more bookkeeping questions:
- Was a copy of the receipt uploaded?
- Call, text, or email Bubba and ask specific questions regarding the expense
- Tag the expense with a comment in the accounting software, asking for more information or a copy of the receipt if it wasn’t uploaded
Stay Compliant with Bookkeeping Questions
Assumptions can result in incorrect reports and tax filings. When we ask questions, we ensure the books reflect the true state of the business so everything stays above board.
An example of a common issue affecting compliance is mixing personal and business finances. Many transactions can be fairly straightforward — such as insurance from a well-known agency. Others can be incredibly vague when the purchase is from a company that sells everything from apples to ziplock bags.
For example:
Big D’s Demolition has several transactions come through from Amazon. Barbara Bookkeeper looks through the invoices that were uploaded to the accounting software. (Good job, Barb!) She notices that one of the purchases is for a collection of lotions and bath supplies. It’s December and she assumes it was for his only employee as a gift/bonus, which she records through payroll.
The outcome:
If she had contacted Big D, he would have realized he used the wrong card on the transaction. Barbara should have recorded it under Owner’s Draw. Instead, the employee’s W-2 information is incorrect, having personal expenses on the books raises questions of legitimacy for investors, lenders, and regulators as well as a red flag for the IRS (and who wants that).
Understand the Client’s Needs Through Questions
Asking questions helps bookkeepers learn their client’s business and goals so they can offer better, tailored advice and services. What are their growth goals? What are their pain points? Are they planning any big purchases?
We will find out which accounting software serves their needs. Plus, our knowledge of bookkeeping may help them grow and expand in ways they never imagined — IF we know what their vision for their company includes. Would they benefit from incorporating bookkeeping tools they do not have?
For example:
Larry’s owns a landscaping company — a small, one-man operation. Barbara asks him what his goals are. He envisions expanding his business but doesn’t know anything about payroll options. His current clients keep him busy and he doesn’t feel like he has time to figure it out. This lack of knowledge has kept him from expanding. He is also cash poor and can’t see any way to buy additional equipment. As Barbara consults with him, she explains his options for payroll and how 1099 works. Within 6 months, Larry hires two employees and purchases a work truck and trailer, thanks to Barbara sharing options for obtaining assets, as well as showing him what his current financial status will allow. Barbara also shows him how upgrading his accounting software will help him keep track of the income and expenses from projects better.
Bookkeeping Questions Build Trust
As we ask questions and offer advice that assists clients, it shows our commitment to accuracy and understanding. Business owners appreciate our thoroughness, which builds confidence and trust.
Sharing crucial information can be difficult for some, but as this trust grows, the bookkeeping questions become easier to answer. Business owners see that their bookkeeper truly has their best interest in mind.
Likewise, if you’re doing your own books, asking questions and finding answers so your books are accurate will build trust with your accountant, investors, and lenders. As your business grows, you may need to ask questions of a bookkeeper and pass that responsibility to them. Having asked questions yourself, you’ll be able to find the right bookkeeper for you.
Ask don’t assume
Always check facts, clarify details, and confirm information with the client. It’s better to ASK than ASSUME.
