Billable Expenses through Purchase Invoices on Cash Basis

My consulting company is on a cash basis and I purchase services I bill directly to clients. Some purchases are made with payments from the company bank account and some are made using purchase invoices. Invoices to my clients include billable time, inventory and service items, and billable expenses. The billable expenses made with company bank account payments seem to be handled clearly on the summary page, ie: they show in the Assets-Billable Expenses field then move to the Less Expenses-Billable Expenses-Cost and Income-Billable Expenses-Invoiced fields. The billable expenses handled through invoices aren’t handled. It does not matter if the purchase invoice with the billable expense is paid or not or if the customer has paid their sales invoice or not. I have followed through the guides to try and make this work for invoice originated billable expenses but it does not seem to be working. Is this a bug maybe or am I misinterpreting the guide or do I have an unreasonable expectation? Of course, when I change my test company to Accrual Basis, it works as stated in the guides. Thanks again for the constant updates (I’m on release 20.2.6) and for a really great product!

And that is how you should be operating your Consulting Company - on accrual basis.

You can’t enter transactions on a cash basis (from the company bank account) and on a accrual basis (made using purchase invoices) and expect them both to appear under cash basis as that is contradictory . I guess the question is - why do you want the Consulting Business to be on a Cash Basis ?

Thanks for your reply! I’m happy there is not a bug in the program! My answer to your question is for easy book keeping and tax time math. The IRS does not require me to use accrual as I don’t have an inventory. Sometimes I accept a bill from a supplier for work or materials related to a client job, and I pay them later, so I handle it as an invoice. Plus, I don’t think of myself as an accountant, which is why I like Manager so much. What is your advice to a cash-based business in handling such transactions?

This is false reasoning when using a computer-based accounting system. You have to enter the transactions anyway. The only difference between accrual and cash basis accounting (as far as workflow goes) is that you get different reports. (There are some philosophical differences about prepaid expenses, but from your description, these do not affect you.)

That is perfectly fine. But, because purchase invoices are not reflected under cash basis accounting until paid, you will not see billable expenses as the assets they are on the Summary page or in your balance sheet. Therefore, you will have an incomplete picture of your current position. (They are assets because they will generate future revenue.)

They are still available for sales invoicing under the Customers tab’s Uninvoiced column. So you can still use the feature.

If you insist on remaining with cash basis accounting, just keep following the processes described in the Guide. But you must accept the fact that you, to a certain extent, be flying blind.

Any accountant will tell you that accrual basis accounting is preferred in almost every situation because it is the only approach that gives you a complete financial picture. (See the discussion of this in the most recent newsletter.) In the case of your consulting business, converting will have three consequences:

  • In the year you convert, you will move income forward from sales invoices issued but not yet paid by your customers. Often, there is a year-end slowdown of consulting work that fortuitously causes this number to be relatively small. And it happens only once, as the next year’s income is reduced by the amount moved forward to the current year.
  • Also in the year you convert, expenses will be moved forward for any purchase invoices you have not yet paid. This will partially offset the income bump mentioned above. Remaining under cash basis accounting forces you to delay deducting those expenses until you actually pay your suppliers.
  • To make the conversion, you will need to file Form 3115, Application for Change in Accounting Method, with the IRS. While the form is lengthy, most of it will not apply to a consulting business, and attachments will be minimal. The approval will be automatic, so the form functions primarily as notification of the change, not a true request. You can still do it for 2019 if you have not yet filed your taxes. (Submission is separate from your tax filing.) As a side note, if this is, by chance, your first year of operation, you can skip this step, because you are not changing anything, only adopting a practice. Simply indicate accrual basis accounting on your first tax filing for the business.

Overall, I believe you will find accrual based accounting more intuitive and easier, because nothing will be hidden.

Thanks for investing your time for me in your reply. Of course you are correct, and after playing around with a fresh test company, your advice is confirmed. Cash basis has been easier for me since I don’t have to study-up on the higher level concepts of accrual basis and my business is simple however, unless I’m using ONLY instant cash based transactions for Everything, I’ll have to use accrual basis. I find Manager to be fantastic for me because of its clean simple fast implementation AND most importantly, the Guides are written extremely well and are very easy to understand. Accrual accounting is scary because of the extra transactions required at year end - I don’t know what they should be or how to set them up. Perhaps a Guide could be started that would “route-the-monsters” from under my bed, so-to-speak and make accrual simple like the rest of Manager is. I did go searching for some training in this area and found a web site to train this non-accountant for free. It’s called and it’s helping me - maybe it would be helpful for others. Thanks again! - I’m switching over to accrual.

Not so. For a consulting company, it is very likely you will never need a year-end adjustment. The only reason I can think of quickly would be if you prepaid insurance for a term that spanned two accounting periods. One of my businesses is a consulting company. In seven years using Manager, I have never required a year-end adjustment for that business. is an excellent site. Be aware, however, that it may lead you to more complex solutions than you need. It is written primarily for corporate entities rather than proprietorships. And it does not address perpetual systems like Manager. So almost all of its year-end closing information is superfluous.

Hmmmm . . . ok.
My consultancy is one of three businesses, the others are small real estate partnership and a machine manufacturing company. Certainly in both there will be transactions necessary to support the pure implementation of accrual methods. The consultancy is the simplest use of Manager and so in this case, the easiest for me to learn from. It is very confusing to read all this expert advice on how to handle year-end transactions, then to hear from you they’re not really necessary. As I noted earlier, A Manager Guide addressing accrual year end transactions would be great support for those of us who really want the right implementation for these transactions in Manager. Thank you again !!!

Year-end transactions really have nothing to do with Manager itself. They are dependent on how your chart of accounts is set up, the types of transactions you encounter in your business, and your practices for paying purchase invoices. These will be covered in any general accounting educational program. The purpose of this forum is to support the Manager application, not to provide general accounting instruction.

In other words, before you can use the Manager tool, it is your responsibility to know what you want to do with it.

Yes of course you are right. I’ll continue looking for advice on handling year-end transactions in perpetual accounting systems like Manager.

I think your best bet is to continue your self-education at Just be aware that the steps discussed there of preparing year-end income and expense summaries and closing out those accounts are unnecessary. The accounts remain open and you simply reset the display period on the Summary page.