Why does Heard request year-end documents? – Heard

Overview

During year-end, Heard will request year-end reports to make year-end adjustments to your books. This ensures your Profit and Loss Statement reflects your true income and expenses more accurately.

This is done by Heard manually creating "adjusting entries" for certain types of transactions. These adjusting entries are designed to bring the financial statements into compliance with accounting standards.

What are adjusting entries?

Adjusting entries is an accounting practice where Heard adds clarifying journal entries to your books to align your true income and expenses better. They ensure that the numbers are complete and have been recorded to match up to the correct accounting periods.

Think of it as rearranging and reframing the income and expenses that have already been recorded rather than adding additional income or expenses. The following examples demonstrate two of the more common adjusting entries we perform.

Example: Merchant fee adjustments

If you use an Electronic Health Record (EHR) system that utilizes a credit card payment processor (e.g., Stripe, Square, etc), the credit card payment processor automatically takes out their fees from your therapy income. If you made $100 with $5 in fees, $95 of therapy income is automatically deposited into your bank account. The $95 in revenue is recorded in your books since we have a journal entry for the deposit. Still, your $5 in fees aren't automatically recorded as an expense since they're deducted before the revenue hits your books.

To accurately reflect the fees you've paid in the year, we will need a report that shows the amount of processing fees your credit card payment processor withheld during 2023.

We will adjust your therapy income and credit card merchant fees by the same amount. The net effect is $0, but your books more accurately reflect the therapy income and expenses you paid in 2023.

Example: Revenue timing adjustments

Another standard adjustment relates to the timing of when therapy income is deposited into your bank account. You might earn some income in December, and the credit card processor may deposit the income into your bank account in January of the following year. Your December income wouldn't be reported in the correct tax year without adjustment.

We need to reflect the correct amounts of income in the right tax year. All 1099 tax forms issued to the IRS report the income expected from your business. We want to ensure that your therapy income matches what the IRS expects!

Does this mean that your books aren't as accurate as you thought?

Not technically. While some adjusting entries are made to correct mistakes, the adjusting entries we discuss here differ. These adjustments are not the result of physical events or transactions but are instead caused by transactions that may not have hit your bank statement directly. The net effect on your overall books will be $0.

Which documents should I expect Heard to request at year-end?

In early January of each tax year, you should see a to-do item requesting that you submit year-end reports before the end of January. It's important you submit these documents as soon as possible so that we can make the necessary adjustments before tax preparation begins.

The following documents will be requested each year:

See Obtaining and Uploading Year-end Documents for more on why each individual document is requested, how you can obtain them, and where to upload them within Heard.