Billable Expense - Cost vs Payment

I like the new version of Manager. More intuitive…

I have been receiving customer pre-payments for book orders I do for them. Per guidance from this forum, I have been logging them as Billable Expenses (works fine). However, I noticed there is also Billable Expenses - Cost listed. This appears as an Expense (Billable Expense - Invoiced is credited to Income to maintain a zero balance since it is just passing through my account from customer to a third-party vendor).

My question is, do I still need to draw up a Payment every time I pay for the books? I’m concerned that Manager will account for a double expense since it will be a Payment I input and the Billable Expense - Cost automatically created by Manager when I create the invoice. I’m confused. I feel like I should be logging the payment so that I have a record that reconciles with my bank account and provides the vendor information used for the purchase.

Thanks for the help.

Billable Expenses is not designed to record customer advances.

Check the guide Record customer deposits and advances | Manager

You need to read the Guides about billable expenses:
https://www.manager.io/guides/5503
https://www.manager.io/guides/9652

I have reviewed that guide…I have been using Accounts Receivable when depositing a customer credit. However, when I brought the prepayment for a third-party purchase to the forum before, I was told to use a negative Billable Expense to reflect the pass-through funds used to make the purchase on the customer’s behalf. It is created as un-invoiced and then I go to Customer and invoice it where it deducts it from the Account Receivable for that customer. The process seems to work okay. However, it remains to be seen how I record the actual expense when I purchase the book using the company’s bank account.

So, to organize my process for you:

  1. I receive a customer payment and log it into Accounts Receivable

2a) If I perform a service, it is invoiced as a non-inventory item
2b) Alternatively if a customer requests that I purchase something on their behalf, I create a negative billable expense for the third-party vendor charges. Then I invoice that Billable Expense

  1. ???; This is where my question comes in. The Billable Expense - Invoiced is now showing as Income and the Billable Expense - Cost is being shown as an Expense. Everything is even. Do I create a Payment to show the purchase? Do I leave well enough alone?

If I stop using Billable Expense altogether and only use Accounts Receivable for customer deposits, how do I accurately reflect that part of customer funds that are just pass-through as they are being used to purchase a product on the customer’s behalf? They really aren’t an “income” of my company. Do I just create another Non-Inventory Item named something like “Vendor Pre-Payment” to charge the customer and then start using Payment to reflect the funds leaving the company to make the actual purchase? I don’t want the tax burden if it is shown as an income when it really isn’t. But Payment is more accurate since it is a true payment to purchase a product for the customer and I should have a record of it.

I have always found your help spot on, Tut. Thanks for being so helpful.

I have reviewed those guides. Previously, I have been creating a Receipt using a line item for Billable Expense and manually making the cost negative. Assets, Income, and Expenses seem to remain accurate from this process. It does not appear in Less Liabilities.

I create it Uninvoiced for the customer and then invoice it from the customer “Uninvoiced” in the next step. However, it seems with the updated Manager, I should be or should have been using Payments all along to enter the Billable Expense?

Also, does this mean I need to go back and reprocess all of my transactions for accuracy’s sake (Yikes!), or should I adopt the new procedure going forward?

If redoing all the Billable Expenses is in order, will everything remain accurate if I take a pdf of them, create Payments for Billable Expenses for each Invoice, and then delete the original Receipts where I created the Billable Expense as a negative, un-invoiced item? I’m trying to formulate the easiest way to correct my error and keep the books straight.

Frankly, @InfoHunter, I was not able to follow your workflow. As a result, I do not understand some of your questions. So I will make some observations and recommendations, in no particular order. Hopefully, they will help:

  • If you are just now noticing the Billable expenses - cost account, you updated from quite an old version, prior to December 2019. The current scheme is much more intuitive and transparent.
  • A payment has always been necessary to record the act of paying for billable expenses (unless you spent your own money, in which case an expense claim would have recorded the payment). Even if you used a purchase invoice, you would eventually have had to record a payment to pay off the payable.
  • Can you provide a link to the advice you say you got to record customer pre-payments (advances) as billable expenses? Maybe there were circumstances you wrote about earlier that are not obvious from what you’ve written in this topic.
  • Your statements about using Accounts receivable when depositing a customer credit are confusing, because they contradict your other statement about entering these transactions as billable expenses. You cannot do both—not should not, but cannot.
  • The smoothest way to handle these situations depends on whether you expect everything related to a deposit, purchase, sales invoice, and customer reimbursement for one job to clear before the same customer starts the process all over. Automatic allocations by Manager can confuse the situation if sets of related transactions overlap. That is where special accounts might become useful. A more detailed description of our expected timeline would be helpful.
  • If you are satisfied that your previous transactions correctly show your financial performance and position, that is, that your net profit and equity are correct, you should not revisit old transactions. Whatever it was that you did then would have been financial correct, even if it was entered in nontraditional ways.
  • I am baffled by your mention of using negative billable expenses on a receipt. While that would have exactly the same effect as a normal, positive billable expense on a payment, I cannot figure out why you would be entering a receipt at the time you are recording purchasing something for a customer. Again, a better timeline would help.

I apologize for the confusing description Tut. Let’s start from the beginning. Please ignore the previous entries that were confusing. I will lay it all out, now. I will explain my process from start to finish. Please keep in mind that I am a layman bootstrapping my home business…

When I receive a payment in the mail from a customer, I open Manager and enter it as a Receipt crediting the customer in Accounts Receivables. No invoice, no nothing. My niche clientele understands that we establish a pre-paid account for them. Then any future fees and purchases are deducted from that credit.

If that customer wants me to perform a service, I create an Invoice and have set up non-inventory items to reflect whatever the service is and the charges for it. (I understand this could also be posted as billable time. i found this option easier for my little company)

If the customer wants me to purchase something on their behalf, I look that item up with my third-party vendor and determine the total amount the company will have to pay out for the said item. I then create a new Receipt for that customer, posting a Billable Expense as a negative value and leaving it un-invoiced.

Then I go to the Customer list and click on the un-invoiced amount for that customer and create an invoice. This opens the invoice screen with the Billable Expense as the first line item. I add any other service fees they may have requested and post the invoice.

So far, this process has created a Billable Expense in both Income and Expenses. That is what I had brought to the forum last winter/spring. I was asking (then) how to reflect a purchase on behalf of a customer so that the bookkeeping would show it as a pass-through dollar amount. I was worried that my company would have it as an income, but it’s really just holding the monies in trust until the purchase is requested. That’s why the Guides you referred me to seemed familiar. I am positive you suggested at least one of them to handle this situation…" Billable expenses are expenses incurred on behalf of a customer." I believe that is exactly what happens for my customer’s purchase requests. No problems.

(Continued)

Now, the thing is, I haven’t been posting a Payment for those purchases in my bookkeeping. Oops! I saw it as a Billable Expense in Incomes and Expenses and, due to my naivete and rush, thought all was done. Manager shows my Assets accurately. The bank account is exactly how much I have in the bank. How is this possible if I haven’t posted the Payments for those purchases? Is the Billable Expense deducting it from Income so the bank account appears accurate? If that’s true, then wouldn’t creating a Payment “double bill” the bank account? I guess its okay as long as I don’t go back and add a Payment now. Just do it right from this point forward! Right now the Manager “Bank Account” is accurate, but I have no process showing the actual payment to my supplier! Sure, my company paid Amazon for 2 books, but you’d never find a record of it other than the note I create on my customer’s invoice and the receipt for the billable expense…I’m an idiot rookie!

I would have noticed this whole absent-minded mess of not posting Payments if the bank account info didn’t reconcile, but it does. I assume that is because I have been meticulous in posting a negative Billable Expense manually from Receipts.

My question is this. Since the books are currently accurate. If I start using Payments to post the Billable Expenses, will it accomplish the same thing I have been doing (the wrong way)? And, the current (wrong) way off posting the Billable Expense has not been accurately reflected in “Less Liabilities”. Will things get screwy since Less Liabilities will only reflect the Billable Expenses from this point forward since I will be doing the bookkeeping the correct way now?

I think that you should lay all your cards on the table as to why you want to go through all these work flow gymnastics to avoid showing turnover in your business accounting file. I do not think that anyone in this forum would want to advise you a particular method that does not comply with the laws of your jurisdiction.

This is where you went wrong (sort of). Financially, a negative receipt is a payment. That is why your bank account balances. The bad news, as you have realized, is that you have no record of paying anything to your suppliers. Instead, you un-received money from your customer. The good news is, that is also why you would not need to redo past transactions. But up until this point, everything you did in the previous steps was correct. You just need to substitute payments for receipts going forward when you actually buy something. And enter all transactions as positive numbers in their appropriate transaction types.

Yes, but it will be much more understandable and easier to explain should you ever be audited. And you will have records of having paid suppliers.

Billable expenses is an asset account, not a liability account. Even in your strange workflow, nothing should ever have shown up as a liability. A billable expense is an asset because it will eventually produce income (after invoicing).

Finally, your concerns about having income show up that isn’t real are unfounded. Whether with the old scheme or the current scheme, billable expenses do not increase your net income. In their original incarnation, they were passed straight through and did not appear anywhere on your financial statements after invoicing. In the current approach, Billable expenses - invoiced shows up as revenue. The tax man loves to see this, and that makes it easier to reconcile what goes on in your bank account with what you report as revenue. But that revenue is simultaneously offset by the Billable expenses - cost. So, assuming you do not mark up the billable expenses upon invoicing, it all nets out to zero. It’s important to understand you are not taxed on total revenue, but on net profit after expenses have been deducted. So the program adds with one hand and takes away with the other. But now it is all visible, whereas previously it was hidden.

I have no cards I am keeping close to my chest. I am trying to learn how to do this correctly using Manager. I am not an accountant. I am running on a shoestring and do not want the expense of hiring a bookkeeper/accountant if I can learn how to do this myself. I am not trying to do “gymnastics”, quite the opposite. I am trying to learn the easiest, most efficient way to keep the books. Period. I am not trying to thwart any laws and I am using the valuable assistance I find in this forum to make sure I don’t even accidentally do something wrong. As a new, home business owner, I figured “money in, money out, simple, right?”, and thought keeping the books correct would be straightforward. So. I was wrong. It has been an adventure and I have enjoyed learning from very friendly, helpful folks like Tut. I am quite proud of all that I have accomplished in learning this program and the good habits necessary for proper accounting. I appreciate every single person who contributes to me and, especially, to this community because it makes everyone AND the Manager program better for it. Thank you.

Thank you, thank you, thank you! Your review is clear AND it confirms that I won’t have problems just moving forward using Payments. The whole “un-received money” thing is confirmation of my idiot status! Just reading your comment has me hitting my head. Ha, ha!

I also see the point about my unfounded fear of income vs. profit. Tax man just wants to make sure I pay my fair due on profit. The net zero is what I was assuming would be the case and that makes sense.

Well, that solves my problems, Tut. Thanks again for all the help! I will completely review those two guides on Billable Expenses to make sure that I use Payments correctly in the future so everything stays kosher. I appreciate your patience with me and respectfully asking me to make myself clearer in explaining my issue. You are a great teacher! Until next time (hopefully a long while from now)…