How do refunds and client credits get handled properly?
A refund belongs against revenue in the period you give the money back. If a client paid in March and you refunded them in April, April’s income comes down. A lot of practices record refunds as an expense instead, which is quick but it inflates both sides of the picture. By December it looks like you earned more and spent more than you actually did, and your tax preparer has to untangle it.
Prepaid sessions work differently. When someone pays for four sessions up front, that money has not been earned yet. It sits as a liability until each session happens, then it moves into revenue one session at a time. That treatment gives you two useful things. Your monthly revenue reflects work you actually delivered, and you can see how much of your bank balance is money you still owe in service.
Client credit balances are the part that gets lost most often. A double payment, a late cancel you decided to apply toward the next visit, a fee adjustment made after the card was already run, or a client who stopped coming with two prepaid sessions left. If that balance has no home in the books, it turns into revenue on paper and stays a promise in your head. I keep a running list of who is owed what so it stays visible. Bookkeeping for mental health professionals lives and dies on small details like this one.
Platforms handle all of this inconsistently, and that is worth knowing. Some net a refund out of that day’s deposit, so the bank number never matches the session fee. Some post the refund separately several days later. Some give the processing fee back and some keep it. Credits vary too, with certain systems recording them as a payment and others just adjusting the invoice. Reconciling the practice system against the bank every month is what catches what the automation misses, and it is a core part of full-service bookkeeping.
The routine itself is short. Pull the refund and adjustment report, match every refund to the bank, check how the fee was handled, and review the credit balance list before the month closes. It takes a few minutes when the records are current and a long afternoon when they are a year old.
How prepayments land on your return depends on how your tax preparer reports the practice, and that call belongs with them. My job is to hand them numbers they can trust.
If refunds and credits have gotten muddled in your books, book a consultation with me and we will sort through it together.
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More Questions
Where do my payment processing fees actually go in my books?
Processing fees belong in their own expense account, with your session revenue recorded at the full amount clients paid. If you only record the smaller net deposit that lands in your bank, both your revenue and your fees disappear from view.
Read answerDo I need an accountant, a bookkeeper, or both?
Most private practices end up with both. A bookkeeper keeps your records accurate and current all year, and a tax professional uses those records to prepare returns and advise on tax strategy. The two roles work best together.
Read answerHow do quarterly estimated taxes fit into my bookkeeping?
Your tax preparer calculates the amounts. Your books supply the current profit number those calculations depend on, and they keep the record of what you paid and when. When the books are months behind, every estimate turns into a guess.
Read answerWhat does tax-ready books mean if you don't do taxes?
Tax-ready means the books are complete, categorized, reconciled, and documented before your tax preparer ever opens the file. I keep the records right all year so your preparer does the tax work quickly and with very few questions.
Read answerHow do I know if my group practice actually makes money on each clinician?
Take what each clinician actually collected, subtract everything you pay them, then subtract a fair share of overhead. What is left is what that seat contributes. Run it person by person, because a practice-wide margin can look fine while one seat quietly loses money.
Read answerHow much should I set aside from each payment so taxes never surprise me?
Common guidance runs 25 to 30 percent of profit, and your tax preparer should confirm the right figure for your situation. The percentage applies to profit rather than to the full deposit, so knowing your real profit number is what makes the reserve accurate.
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