How to process unpaid billable expenses when migrating from Quickbooks

Hi everyone! This is my first post in the forum. I’m currently in the process of migrating from Quickbooks Online to Manager and am perplexed by this question. My situation is as follows:

I’m a handyman and have billable expenses logged in QBO from 2021 but I completed the job and am creating the invoice using Manager in 2022. And, to add an extra twist, I never used the actual billable expense feature in QBO because that feature wasn’t available in my price tier. Instead, I always categorized such transactions as “reimbursable expenses”. Then, when I invoiced client, I added an extra (untaxed, since I always paid tax at source) line item for the amount of the reimbursable expense transaction.

Now that I’m in Manager and have the billable expense feature available I intend to utilize it. Can anyone suggest a good way to deal with this dilemma?

When you are new to Manager you must use the Guides first and learn. So visit Guides | Manager . Manager looks simple when starting but it is pretty powerful and therefore you are advised to first learn more about it, experiment with test businesses, etc. Then you can try to implement it to satisfy your own and your tax authorities needs. It is fantastic at helping you to prepare for taxation.

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@eko Thanks for the speedy response eko. I’ve been reading a lot of the guides, including the guide on billable expenses, and they’ve been very helpful. Unfortunately, I couldn’t identify any of the guides that addresses my question. I’ve also been reading a lot of forum posts but many of the threads related to billable expenses are outdated, according to @Tut. I’m aware that proper forum etiquette is to always look for existing information before starting a new thread.

What, specifically are you referring to? I may have said a thread was outdated. But I don’t recall ever saying the Guides on billable expenses were outdated. As I write this, the web site is automatically being rebuilt so I cannot check. But I don’t think the Guides on recording and invoicing billable expenses are out of date.

Separate your 2 problems and deal with them in the following order

  1. In the future how do you want to run your accounting system. To determine this set up a test business (probably several till you find the best), create accounts, enter typical data and see if it produces the documentation you require.

  2. Enter old data into this preferred structure as required to achieve the starting balances and reports required for partly done jobs

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I was only referring to some forum threads discussing billable expenses. You had also mentioned that you kept such threads around because you thought they contained other types of valuable info/content. I haven’t had any issues with the guides.

Thanks for the suggestion, Patch. I read and contemplated quite a bit before choosing my system. I’m just learning as I go and trying to simplify as much as possible. After paying a CPA for 2-3 years to help me form my businesses, set up an accounting system and assist with my tax returns, I’m using what I learned from my CPA as a model with some small adjustments aimed at simplifying things. It’s a lot to think about but I think I’m on the right track.

One thing that has me second guessing my accounting system is a thread I read where @Tut was explaining that almost every business type will have more accurate and meaningful results by operating on an accrual basis vs cash. At least when things like billable expenses, billable time, etc. are concerned. I’ve been operating on a cash basis all along, even being encouraged by my CPA. I suppose that’s for a different conversation, though.

Maybe you can point out the exact quote. But I don’t think I would have said more accurate. More thorough, complete, and up to date, yes, in that you will have a total picture of both position and performance at any given moment. Cash basis accounting is perfectly accurate (assuming the entries are correct); it just lags reality. Whether that is material depends on the nature of your business. And that is why some jurisdictions require accrual based accounting in certain situations, especially if inventory is involved.

Basing your accounting on earlier information gives a more up to date assessment.
However for it to be more representative, you need to consistently enter information earlier across your business. Entering some parts earlier and others only when money comes into / out of your bank account my not give you a more accurate overview of your business financial status.

I can’t seem to locate the exact quote. What you say makes sense, though, and that’s pretty close to how I understood you to explain it before. I think “accurate” was just the wrong word for me to use. Your point to ask whether accrual based accounting is material is good. I don’t think it is very material for my single worker handyman business. I don’t hold inventory and usually get paid on the same day I complete a job.

I can see how it would become more material with future growth of this type of business, though. I’d like to study the topic and maybe switch next year if it makes sense, but I’m also contemplating just trying it out by switching to accrual basis for 2022. After all, I’m making the transition from Quickbooks anyway. So many options!

I think I follow. It’s pretty clear to me that you have to choose a method and stick to it. As for timely entries, I’m not the greatest with that. I usually lag for a few days and then catch up all at once. Quickbooks made it pretty easy for me to enter transactions in a timely manner since my automatic bank feed was activated. QB also made it easy to accidentally duplicate entries.

That is cash based accounting. You are entering transactions when you actually pay for it or get paid.

For accrual based accounting you have to enter the transactions when you are contractually committed, typically when an invoice is issued.

If you enter your sales when contractually committed (when you invoice) but only enter your purchased when you pay (money comes out of your bank) then selecting accrual accounting in your software will only make changes to half of your business transactions, and distort you financial reporting.

I hadn’t thought of that. It reinforces my (somewhat educated) guess that cash basis is a good choice for my small handyman business at present. Nonetheless, it would help if I study the subject more.

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UPDATE

Based on the valuable input you all have given me I think I’ve come up with the answer to my original query. I’ve run a couple of tests and it looks like it’s as simple as the following:

  1. Calculate total uninvoiced billable expenses from 2021 from old accounting software.

  2. Add total from 1. to my opening bank balance in Manager for 2022.

  3. Recreate the billable expenses from 1. in Manager.

  4. Invoice clients as needed, adding the backdated billable expenses to invoice as normal.

Let me know if this sounds like a bad approach to anyone. :sweat_smile:

No offense, @Bizman, but step #2 sounds like a terrible idea. Your bank account balance in Manager will never be correct. The billable expenses have nothing to do with your bank balance.

Let’s get a few basics correct. You have been using cash basis accounting, so the billable expenses left the business when you bought the materials. So they are already in the rear view mirror. Putting them on a sales invoice would, under accrual basis accounting, put them into Accounts receivable, but that doesn’t exist (for reporting purposes) under cash basis accounting.

I think your best bet is not to try to pass those items through Billable Expenses across the transition. They’ve already been invoiced under the old system. Don’t invoice them again. They did not show up in last year’s income, because you did not get paid. Just wait for the receipt to come in and enter the income on it.

As a side note, cash basis accounting is usually a good choice for a services business like a handyman would run, especially if you usually get paid the same day.

A good source to learn more is Accrual Accounting vs. Cash Basis Accounting: What's the Difference?.

We have too little information about your business and workflow. For example do your customers require you to give an estimate of the job and materials and supplies you will use? Do you receive advance payments? I guess that in QBO you would have an expense account called reimbursable expenses, where you record the expenses made on behalf of the customer such as travel expenses. You will then invoice the customer for this and other expenses and once you receive payment record that in income.

That is straight forward as you get reimbursed for these expenses as part of the income you generated. When using Manager’s billable expenses this is more complex as it in essence is better used in accrual accounting because they become an asset on the Balance Sheet first based on an invoice.

I think if reimbursable expenses worked for you, you just need to create a reimbursable account in the Chart of Account settings under Profit and Loss and assign it as expense account see below.

Screenshot 2022-01-10 at 03.51.46
You then make a payment for and assign it to the reimbursable expense accounts such as:

When your customer is ready to pay you open the reimbursable expense screen so you get its view screen and then use COPY TO RECEIPT.

There you can also add, as I did, for example income earned (workmanship hrs) see below.

This will clear as expected the reimbursable expenses and add the workmanship to your income and cash (or bank account whatever you select).

Now for your question related to 2021 Expenses logged in QBO but being received in 2022, I would just simply recreate these and assign them to the 2021 date you incurred them and copy to receipt on the day you received the payment. I would not use invoices at all in your case, just payments and expenses.

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@Bizman, if you are committed to cash basis accounting, @eko’s summary is probably a more useful approach than using Manager’s Billable Expenses module. Remember, Manager is, at heart, an accrual basis system with available cash basis reporting. So some of the features are best used under accrual basis.

No offense taken! I’ll take all the constructive criticism I can get… but I don’t understand why billable expenses have nothing to do with my bank balance. When I purchase job materials I expect my client to reimburse me for I fund those purchases from my business bank account. Then, when I get reimbursed by client, I deposit that payment back into my same bank account. I must be missing something.

I think I follow…

I hope I’m not splitting hairs but my billable expenses from 2021 weren’t invoiced, from what I understand invoiced to mean. I did log the purchases as (reimbursable) expenses but the invoices are only being created in 2022, in Manager.

Confirmed!

@Bizman, just follow my advise, you are overcomplicating things. Forget about the billable expense settings, because it is more complicated for cash accounting than just creating an expense account.

If you want to switch to accrual accounting, you may still not use the billable expenses as you could as well just create these in the invoices. The main difference as explained is that accrual accounting establishes accounts receivable (under assets) and accounts payable (under liabilities), both of these are in the Balance Sheet and not in Profit and Loss account. However, what it does is that as soon as you issue an Invoice it will already record the amount to be received in both the accounts receivable and in the income account (Profit and Loss account, right side on your summary screen). It pretends thus on the P&L account that the income has been received but in reality as long as the invoice has not been paid (cleared) will show up in accounts receivable.

Why accrual is preferred because it gives a better picture of the balance sheet, ie what you own and are owed. Cash accounting has a benefit because it is simpeler and makes you acutely aware of cash flow problems, which is much more obscure in accrual accounting because you already list things as income and expenses that have not yet been subject to an actual financial transaction (payment and receipts).

Given what you told us about your work, it is best to do what I advised you. Also keep the number of expense accounts to a minimum and avoid using invoices as these are usually given ahead of time with a credit period to your customers or to you by your suppliers. So keep it simple and just record payments and receipts by importing bank statements and reconcile these if needed to see if there are discrepancies.

You’ve surmised correctly about my current method. I’m also happy to give more info. I’m just trying not to overwhelm everyone with too much info. Here’s a breakdown of my handyman business:

I’m owner/operator of a single member LLC in Washington state, USA. I don’t plan on having employees and I don’t hire sub contractors. Here’s what I do do.

–work mostly small jobs with occasional multi-day jobs

–purchase client materials using business funds via business debit card

–charge clients for time and materials, with occasional bids

–email sales receipt to client, if requested

–create estimates for clients

–get paid on same day of work (check or cash)

–invoice organizations (e.g. home owners associations)

–get paid days or weeks after invoicing client

–file quarterly business/excise taxes

–track mileage to/from job sites and hardware stores

–try to keep things as simple as possible

I can do that but I was somehow under the impression that the billable expense module would be more streamlined. I think the only reason I didn’t use that feature in QBO was because my CPA set me up with a lower pay tier that didn’t include that feature. At some point my CPA recommended I pay to get into the Pro tier so I could access the proper billable expense feature. I did that but didn’t get to implementing the new workflow.