By Michael Meltzer, CPA

Some say the smartest clients look for the CPA with the most gray hair; the reason being that the longer they've been around the more they know and the better advisers they would make. I don’t know about that, but with experience a certain amount of knowledge and ability does grow, particularly with any accounting system. Among the many tasks CPAs perform is directing clients, new and old, on accounting systems. From accounting ledgers to cloud computing, the gray-haired CPA can accommodate the preferences of our clients. Unfortunately, too often there is a reluctance to champion a particular method. We tend to suggest that clients choose for themselves the system that best suits their needs and ability. I contend that old habit should be put to bed: today, everyone should be encouraged to adopt a modernized accounting system.

Let me be clear: modernized accounting is not the use of spreadsheets and pivot tables. Pivot tables are a miracle of modern technology that can sort and summarize large amounts of transactions by category faster than we can add. When you boil it down, though, this method is simply computerized yellow-pad accounting: the method by which people write down every invoice or receipt in a category and then add up the column thereby having totals of each category of an income statement. Spreadsheets make the task of adding faster and more accurate, but this is not modernized accounting.  

Modernized accounting has three pillars. The first, and most important, is using an application (app) that links to the bank. The second is invoicing your customers with the same app or a point-of-sale system that integrates with the app. The third is automating your payment process as much as possible using vendor systems or automatic payment processes.

Pillar 1  

The most important aspect of using a program that links to the bank is the ability of the software to import transactions and code them based on previously established rules. Some systems are so advanced that even if you have not set up a rule they can remember how you coded transactions in the past and provide an educated guess to speed your work along. An integral part of the linkage is being able to do bank reconciliations on a periodic basis. It is not inconceivable that through modern systems you can reconcile every week or every day. In the past, we were impounded to reconcile once a month when the bank statement was ready.  

Pillar 2  

Using an invoicing system that connects with accounting program is an obvious necessity. Very few people still use carbon-copy receipts. Most invoicing software has probably made an effort to connect with the most popular accounting software. This connection is important so the system can match deposits with invoices.  

Pillar 3  

Automating the payment process may be the most interesting part. Many vendors give discounts if you give them your bank information and sign up for automatic payments. The most common categories of expenses that can be automated this way are telephone, utilities, and subscriptions. Another category of expense that has long been automated is payroll. Payroll and taxes are automatically drawn from the bank account the same week you submit the information to the payroll vendor. If you have not already linked your payroll provider to your accounting software, you should do so right now. Once you have come to trust and accept that payroll can be drawn with all its complexities of calculating payroll tax and payroll service fees, why can’t we accept all vendor transactions as an automatic draw after request? Of course, not every vendor is ready to accept automatic payment (which means their accountant needs to read this article). Another tool in the modernized accounting toolbox is billpay. Most banks have a billpay system where they will print and mail checks for you. You can set it up to have regular, repeating payments paid automatically each month (or quarter), or you can periodically enter an amount and submit for dispatch. The most common categories that can be set up this way are rent, insurance, and outside services. This tool, combined with an automatic and repeating bill creation in accounting software, means less of a chance of late fees or disruption in service due to nonpayment, and more time spent servicing clients.

The biggest hiccup to Pillar 3 – and I don’t see any way around it as long as cash exists and people give discounts to receive cash – is the need to be able to enter unusual and periodic transactions into the accounting system. By nature, accounting systems are designed for the input of transactions. All systems have the ability to record cash or unusual transactions. A modernized system should not preclude you from operating in the manner you have before. Unless a manager wants to save themselves the burden by only doing business with vendors that take automated payments, we must acknowledge some input requirement is needed.

Predictions  

Banks are always in competition to retain and keep accounts. There was a time when they gave out small appliances as a promotional item to lure new customers. Now, you will often see cash incentives for opening accounts and having paychecks directly deposited. I predict that in an effort to attract new business, banks will start to roll out their own proprietary versions of accounting software, including the ability to invoice customers. You can already see it in some banks where you can code your transactions. This is but a short step away from a system that connects with other apps and allows you to quote customers, send invoices, and view financial reports.  

Michael Meltzer, CPA, is with Meltzer & Meltzer in Huntingdon Valley, Pa. He can be reached at michael@meltzercpa.com.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.