October 2024 Managing the Money with Megan Schmitke

3 Ways to Check if Your Bookkeeper Knows What They're Doing

by Megan Schmitke

First off, if you’ve been outsourcing your bookkeeping to a professional, then props to you for taking it seriously!

HOWEVER, I just wanted to take a quick moment and let you know that not all bookkeepers are created equal. There are some unique complexities that come with a retail/product-based business that not all bookkeepers fully understand. I have reviewed several Quickbooks accounts that were managed by bookkeepers, and there are several items I often find that have been mis-handled.

That’s why today, I want to share 3 quick ways that YOU can see if your bookkeeper knows what they’re doing when it comes to your bookkeeping…

1. Accurate Revenue Tracking Beyond Deposits

One common mistake is confusing bank deposits with actual sales. Deposits in your bank account might not always reflect the true revenue due to factors like refunds, chargebacks, or fees. It’s essential that your bookkeeper does more than just record deposits as sales totals.

They should be tracking sales as they occur from your point of sale system (such as Shopify), and then reconciling all the payment processors each month (such as Shopify payments or PayPal) to ensure that all the correct amounts are actually coming into your bank account.

To tell if your bookkeeper is doing this correctly…

1. Make sure your income statement “Sales” section reflects what’s actually recorded in your point of sale system. These numbers should not be that different (if at all).
2. Look at your balance sheet, and make sure all the ways that you collect payment (Shopify payments, Paypal, Sezzle, etc…) are reflected with whatever month-end balances they held.
3. You can also check your balance sheet to see if there is some type of sales tax liability account. If not, they are likely including sales tax you collect as income, which is inflating your sales numbers.

2. Proper Tracking of Inventory & Cost of Goods Sold

In order to accurately see your margins on your income statement, you need to make sure that the inventory is being expensed when SOLD through your cost of goods sold, instead of when you buy it.

And while yes, you can legally deduct the inventory when you buy it, you’re never REALLY going to know if you’re pricing your products in a way that helps you run a profitable business.

To tell if your bookkeeper is doing this correctly…

1. Look at your income statement on a month-to-month basis. Is your cost of goods sold a somewhat consistent percentage of your income? Or is it showing your margins are 80% one month, 20% the next month, and -10% the next? If that’s the case, your inventory is likely being expensed at the time of purchase.
2. Your balance sheet should also reflect an “Inventory” asset account, and while this may not 100% match what your point of sale system shows at the end of each month, it shouldn’t be DRASTICALLY different.

3. Thorough Cash Tracking

This one doesn’t necessarily apply to online-only businesses, but if you have a brick-and-mortar location, listen up…

Your bookkeeper needs to ensure that all cash transactions are tracked meticulously. This means recording cash payments and receipts, and helping you manage any cash in the drawers/safe. They should be reconciling your cash on hand each month and keeping track of any discrepancies due to inaccurate change (hey, it happens), or even worse, employee theft.

To tell if your bookkeeper is doing this correctly…

1. Make sure your balance sheet reflects some type of “Cash on Hand” asset account that accurately reflects any cash/change that was in your store cash drawers and/or safe at that date.

In summary, just because you HAVE a bookkeeper doesn’t mean that you can blindly trust that everything is being taken care of with 100% accuracy. To make sure your financial statements are giving you the best & most accurate picture of your business, take a quick look at these 3 areas on your most recent financial statements to make sure that your bookkeeper is doing what they should.