Hi,
I’ve set up non-inventory items for our services which are under the revenue account when sold.
I’d like to also set up a billable expense as a non-inventory item however it doesn’t appear to let me select the billable expense - invoiced account only billable expense - written off. Is there a way around this? This fee is something we pass on the fee for so it is a billable expense.
You are misunderstanding how billable expenses and non-inventory items work. Billable expenses are only expenses you incur on behalf of your customer. So, the planning portal fees could be a billable expense. But to enter them, you must record their purchase, either via purchase invoice or payment transaction.
Non-inventory items are things your business buys or sells on its own. So, an application processing service fee you charge your customers for your company’s labor could be a non-inventory item. Similarly, planning portal fees (if you pay them routinely) could be set up and purchased as non-inventory items.
But that fee cannot be both something you pass through to the customer as a billable expense and a non-inventory item that is charged to one of your own expense accounts. Follow the accounting flow:
- When you purchase something as a billable expense, it is debited to the Billable expenses asset account. It is an asset because you can later invoice the customer for it and generate revenue. The corresponding credit is posted to either Accounts payable or a cash or bank account, depending on how you made the purchase.
- When you invoice the billable expense, the Billable expenses account is credited and the Billable expenses - cost account is debited. At the same time, Accounts receivable is debited and Billable expenses - invoiced is credited. That’s right, there are actually four account postings associated with this action: two debits and two credits, all for the same amount.
All this is necessary because a billable expense has no net effect on your Profit and Loss Statement. It is, as you correctly understand, basically a pass-through.
But since non-inventory items are things you buy or sell for your own business, they can only be posted to income or expense accounts, or certain ordinary (that is, non automatically created) Balance Sheet accounts. They cannot be injected into the hard-coded processing that accompanies billable expenses.
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thanks @Tut
This is exactly what we do. For every job we do this fee would apply. Its a government fee we can’t avoid.
I was hoping to save some time with data entry by having it as a non-inventory item.
As. I said, it can be a non-inventory item. It just cannot also be a billable expense. So purchase it as a non-inventory item, then sell it to your customer as a non-inventory item. The net result will be the same as you wanted, but you will be leaving out the part of the workflow that parks the purchase temporarily in Billable expenses.
thanks @Tut
do I just leave the account empty in the non-inventory item? or is there something that I have to do to make what your saying work? apologies but I’m not an accountant or a book keeper so just want to make sure I’m doing it right.
Also how to I marry up what order / client the payments apply to? I would normally rely on billable expenses to tell me when this item needs to be invoiced against each client but if I’m not entering it as a billable expense I’m not sure how that would work.
There are occasions where this fee wouldn’t apply and I just want to make sure that it gets paid and invoiced to clients correctly.
That is up to you. If you always want the non-inventory item to be posted to the same income account (upon sale) or expense account (upon purchase), designate those accounts when you define the item. But, if you want to be free to post a non-inventory item to accounts as appropriate to a transaction, leave the accounts blank on the non-inventory item definition and select them when you enter the transaction. Note, if you choose the latter, there is not a lot of benefit to defining the non-inventory item in the first place. Personally, I would take the first path, but the decision will depend to some extent on the structure of your chart of accounts.
You will not, and it doesn’t matter. Imagine if you were to invoice 5 different customers for planning portal fees, and whoever maintains the planning portal invoiced you at the end of a month for 5 fees. It would not matter which of the 5 fees you are invoiced for was associated with which customer. This is no different than if you had a business painting only white fences. You might define a non-inventory item for a gallon of white paint and invoice customers for approximately as many gallons as were used on their jobs. Periodically, you could purchase 5 or 10 gallons of paint, not caring whether that paint went to replace previous stock used to paint earlier fences or would be kept in your truck for future fences. (Note, in this case, you are not treating the paint as an inventory item held for sale or production, but as consumable supplies incidental to the service of painting fences.)
Payment of the fees and invoicing of customers are separate. You simply pay whenever you are charged by whoever maintains the portal. And you invoice your customers whenever you sell the access to them, according to the terms of your agreement with them. Again, the sales and purchases do not need to be matched up.