Debit Note / Credit Note Enhancements

I have already made a post on this matter, I need to create 1 control account for each type of trx which is absolutely fine. Then if I had 4 control accounts, I need to create 4 accounts for each customer which is not fine. Plus I would lose the all the perks that comes with customer/ supplier accounts.

See my other post

If open makes no sense then I referred to them as unapplied which are the same thing to me.

This is exactly my problem

You have missed the point. I would bill the expense if it was in my own name. If the 3rd party bill is already in the customer’s name; I am not double-invoicing the expense – which was never my expense to recharge. I just want to debit him with his account movement whatever it is (receivable, payable, deposits, unearned revenue … which is irrelevant for weather it is an invoice or a note)

With respect, you have missed my point. Billable expenses are meant for purchases you make, whether by purchase invoice or payment, that are not expenses of your business. In other words, they are not “in your name,” even if paid from your accounts. The process of invoicing billable expenses passes the expense through to your customer. They appear under Accounts receivable until the customer reimburses you, but they never appear as your income or expense. You are concerned about recharging, but that is not what billable expense invoicing does. It merely passes the expense through without charging again.

I don’t want to get into theory but a billable expense is a direct expense attributable to a customer, job or a project which hasn’t been invoiced. This is done for better matching of revenues to expenses because if an expense was not invoiced it should sit in “assets” rather than “expenses” where it would distort profitability.

Having said that, this is totally besides the point so let’s not go there again.

As far as the legal and economic substance of a transaction, I should not record as an expense of any kind or otherwise any purchase invoice addressed to other people since it is not mine. Also, I should not invoice other people with thing I have not done.

If I purchased the expense and a supplier addressed his invoice to me then I must record such invoice as mine and then recharge it to my clients. My invoice makes my customer liable for something he wasn’t, hence its economic substance. I “owned” whatever items/services/expenses in the invoice at least for a short period of time and hence its legal substance. I am happy, customers are happy and both our auditors are happy

The case you suggest, someone X charges my customer Z directly, I pay the invoice which is not mine using funds that I do not own, reinvoice Z with the services that he already recorded as a liability. Let’s see what’s wrong here:

  • The cusromer has already recorded the liability from X’s invoice to him, my invoice gives 0 rises to any new liabilities, in fact it is double billing of the same amount X has billed since the they have the same underlying items/services/expenses. No economic substance to this invoice.
  • I never was liable to X with any amount, legally not my expense … I still record it, then I invoice my client with items/services/expense that I never owned at any point in time. No legal substance to this invoice.
  • If my issued invoice has no economic or legal subatance of an invoice, why would I call it an invoice? In fact there is a name for a document that tells other people that they owe you or that you owe them less without satisfying the economic and legal requirements of an invoice, it is called “Debit Note.”
  • End result, I am not happy with the convoluted and excessive work flow, customer wants to know why is he billed twice and auditors are triggered at every step of the way.

I do not intend to change the business conventions in Bahrain nor do intend to change the views of my customers and auditors. I just want to raise debit notes to customers and record debit notes from suppliers and be able to apply them according to the legal agreement between us and our customers/suppliers.

@tut we wandered way off topic on this one, I never was talking about accounting treatment; my problem is with the “Documentation” part only: What title should appear in the document telling customers their accounts were debited. That is it.

Regardless of what the accounting entry is, we should never use invoices for non-sale transaction because this is what the term “Invoice” implies.

What you said about credit notes being used to reduce customer balances and invoice to make additional charge against invoice is correct, this is standard text-book definition for merchant /trader sale transactions, however, not every business is a merchant/trader and not every transaction is a sale or is sales related. There are multiple other uses for Debit and Credit Notes you know.

Have a reading

Yes, @Ealfardan, this discussion has wandered too far from the original subject. So here are my final comments:

  • I reiterate everything I have said (several times) about both debit and credit notes being applied to suppliers’ and customers’ account, not to payments and receipts. The notion of debiting or crediting a monetary transaction remains illogical.
  • If you are reluctant to call a demand for payment from a customer a sales invoice and want to retitle it as a debit note, you can. No change to the program is required. Just check the box and change the title. If you were able to issue debit notes to customers, the effect within Manager would be identical to a sales invoice.
  • Billable Expenses are perfectly suitable for the situation you describe of paying fees on behalf of your customer. Your insistence that they are not suggests you do not understand how the Billable Expenses feature works in Manager. You should experiment with a test company.
  • Your description of some type of statement that lists unpaid invoices, combined with receipts or payments that are “unapplied” (whatever that means), but without debit and credit notes, to come up with some sort of current balance is incomprehensible to me. It certainly does not match any customary accounting document I am aware of. So I think you are going to have to construct such statements outside of Manager, using whatever inputs you think are appropriate.

If you think there isn’t any reason, I gave you a reason, but obviously you don’t read thoroughly:

  1. the note is not related to any invoice in any way shape or form.
  2. the note ultimately has to be paid according to a legal agreement signed between both parties.
  3. Once the payer issues a remittance advice with the notes contained within it, they are applied against the receipt/payment.

There you go:

This one is the outstanding documents report, should contain everything that is unapplied, unpaid, outstanding … whatever you want to call it. Please mind the customer receivable total.

Transaction history … The total matches.

I think it is clear as day by now.

On the contrary, I’ve read all your lengthy posts very thoroughly. Nothing you have written before, and none of the three numbered points you wrote after the above quote changes the fact that no debit or credit note can be applied against a receipt or payment transaction. For the last time, they are applied against specific invoices or a supplier’s or customer’s account.

As to the two screen shots you show in your last post, they are proof of my point that you cannot have all you listed on a single statement. Wherever you got these, it has taken two statements of different types to include all the information you want. And while the customer receivables on them match, receivables are only a part of either statement. The receivables subtotal on the first matches the closing balance on the second, but only because debit memos have been included on the second, something you said you explicitly wanted to exclude.

The second screen shot of the Account Transaction History is functionally the same report as Manager’s Customer Statement - Transactions report. The first, Statement of Account, is equivalent to a drill-down on the customer’s subaccount under Accounts receivable, sorted by transaction type. This is easily exportable.

So, with two reports (one built-in and one an export), Manager can provide the same information as the other system you show does with two reports. It doesn’t matter what country you are in. Basic accounting is basic accounting

Another proof that we were never on the same page. I never requested that I have all information in a single report, when have I said this? This is getting too frustrating.

@Ealfardan, what you are describing is Trust accounting - to give a small example.
Real Estate - the contracts are between the Seller and the Purchaser. The purchaser deposits the required funds with you (a service provider) and you make the required disbursements.
There maybe a sum left over which is your fee.

My first point is this - these deposits and disbursements should be via a separate bank (trust) account, not a bank account belonging to the business. It is unclear from your comments if you are operating with separate business / trust bank accounts.

If you are operating with separate business / trust bank accounts then my suggestion would be to operate the Trust accounting via a separate Manager Business from your main business. This way you can customise the documentation so that you aren’t being conflicted with Invoice and credit/debit note terminology.

If the Trust account holds funds which are your business fees, then your business would invoice the client but be paid from the trust bank account.

An advantage of this separation is that the client receives two statements, one showing the deposits and disbursements and one showing your fees and services and their payment. Trying to have one statement combining the two would be nightmarish as you actually have two identities - the business and the trust.

However, if you are operating with only one combined bank account (yuk) then Special Accounts should be used to separate the trust transactions, but as you have noted, you won’t get the statement look, but an export into a “master” spreadsheet could achieve something similar.

Thank you, right on the nose. This is my main problem, most of my client’s request a single statement, plus we sometimes use customer deposits to offset our invoices.

I have a temporary work-around by recording all transactions of a single customer in accounts receivable only, since I find creating multiple special accounts for a single customer troublesome. I also issue negative credit notes with a custom theme that says “Debit Note” when negative, apply these credit notes to 0 value dummy invoices then I apply payments to these credit notes. Quite often find my self lost, either when processing transactions or drawing statements.

I currently use a shared bank account for all customer deposits, just because they might overdraw their deposits and I do not want to deal with the bank’s complications.

I will consider your proposal of separating bank accounts and issuing two sets of statements and see how this works, otherwise, I must find a better way to suit our work flow.

Thanks alot.

Unless I’m misunderstanding @Brucanna, that was what he recommended.

  • One account for your business with associated Manager business
  • Another physical bank account and associated separate Manager business to record and maintain all customers trust funds.

So total if two bank accounts and two Manager businesses to document your and many customers activities

Why would you need multiple special accounts.
If you can record all transactions (trust & business) of a single customer under accounts receivable, why can’t you put all the trust transactions into a single special account, leaving the business transactions within the accounts receivable.

This way, with your shared bank account (trust and business) you just need to proportion the deposits as required when received. They can then be edited to remove any imbalance, or via an end of month Journal which compares the customer special account balance v’s account receivable balance.

That is certainly one way to do it. Thanks

As a refresher, I found another situation where Credit/Debit Notes do not apply directly to invoices and where Payments/Receipts should directly reference Credit/Debit Notes.

The situation is refund of a cash transaction or previously settled invoice from locked periods:

In my country, the law is that, credit and debit notes are used to make an upward or a downward adjustment on a Tax invoice to correct a mistake on the Tax invoice. So if a mistake was made on a Tax invoice and so tax is undercharged for a customer, Tax Debit note will be issued to the customer to correct the initial invoice. The tax debit note has to display the initial invoice number and show all details that is necessary. In situations where a mistake was made and tax was overcharged to the customer, a tax credit note is used for a downward adjustment of the initial invoice amount. The same is done for suppliers.

You could issue a normal invoice and change the title to Tax Debit or Tax Credit as required

That is a wrong approach. That does not adjust the original invoice. This is for correcting an original invoice but not to create another invoice there is a difference.

I don’t understand. Are you saying you have to modify the original invoice? That would seem perverse

I am suggesting you create another ducument to correct the mistake

I am closing this topic to further discussion. It began six months ago with disagreements and misunderstandings over basic accounting practices concerning debit and credit notes, wandered into billable expenses and special accounts, detoured into various local customs and practices, and wound up as a dispute over transaction titles. Maybe someone else can follow the logic, but it escapes me.

I am not closing the topic to discourage or cut off discussion, but to organize it. If anyone has a legitimate point to raise, please restate your position or ask a question in a new topic.