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.
Helping the People Who Help Others
Let's Start With
a Short Conversation
Tell me where your books stand right now, even if the honest answer is that nobody has looked at them in a year. I'll ask a few questions and give you a clear idea of how I can help.
More Questions
I'm a good therapist and my books are a disaster. How normal is that?
It is extremely normal. Clinicians spend years training for the work in the room and almost no time learning bookkeeping, so the money side is usually the part that slips. Catch-up work has a clear beginning and a clear end, and it says nothing about your skill as a clinician.
Read answerMy practice is fully telehealth with clients in several states. What does that mean for my books?
On the bookkeeping side, working across state lines mostly means keeping cleaner records. Platform and subscription costs get tracked, payouts get reconciled to real deposits, and income gets organized so your tax preparer can handle whatever state questions apply. Licensing and state tax rules belong with your boards and your tax professional.
Read answerWhat's the difference between profit and the cash in my account?
Profit measures what your practice earned and spent over a period of time. Your bank balance shows what is sitting there at one moment, after payment lags, big annual bills, tax set-asides, and owner draws. Both numbers are true, and they answer different questions.
Read answerWhat does working together month to month actually look like?
After a short setup, most months are quiet on your end. I categorize your transactions, reconcile your accounts, send you a small list of questions, and deliver reports with notes written in plain language.
Read answerWhat software should a small practice run its money on?
Three pieces cover almost every small practice. The practice management platform you already use for scheduling and client payments, QuickBooks Online for the actual books, and a business bank account underneath both, connected so the deposits reconcile.
Read answerWhat's different about bookkeeping for a psychologist who does testing?
Testing behaves like a second business inside the same practice. The engagements run long, the money often arrives on a different schedule than the work, and materials cost real money, so testing revenue and testing costs belong in their own categories.
Read answer
