Personal funds for customer purchase prior to retainer

[ksh]

How do I enter a purchase made for my client/customer with personal funds prior to receiving a retainer/advance funds? I bought a chair at Pier 1 for $137.79 for design approval using my personal Visa card since the business was new and had no funds available. Upon approval I then sold the chair to my client/customer for $138, adding a $.21 markup to it.
First I need to know what account types I need to use or create to log the original purchase transaction. I don’t know if I need to create a Purchase Invoice but I know I need to create a Sales Invoice for my client/customer. To complicate things even more I was paid a retainer of $1300 which included the $138 repayment for the chair. I figured out how to create a Service Sales Commission/Markup account in the Chart of Accounts. That went smoothly. I also created a Company Owes Me account as well. I’ve tried many ways to get this to work with partial success in some accounts but errors in others when I try to enter the transactions. I hope this is understandable.

[Brucanna]

For the purchase you need to activate the Expenses Claims Manager Cloud & the Billable Expenses Manager Cloud tabs. When these tabs are activated they will create the required associated chart of accounts. The billable expenses guide also illustrates how to invoice your client with a mark up.

I suggest you first delete any transactions and chart of accounts you created so the above steps are seen more clearly

When invoicing your client complete the billable expenses charging first then edit that invoice by adding a line which will cover the additional 1141 (1300 - 138 - 21)

[ksh]

Thank you for responding.
I deleted all of the other stuff I did and followed the steps you gave me. All worked out well except I still have the Billable Expenses showing up with $137.79.
I created the client invoice with the amount I paid, the amount going to the retainer, and the markup. All went to the proper accounts perfectly.
How do I clear out the Billable Expenses now? Or did I do something incorrectly?

[Tut]

@ksh

How do I clear out the Billable Expenses now? Or did I do something incorrectly?

You are on the right path, @ksh. Think of it this way: you invested $137.79 of your own money in your company when you bought the chair, just as if you had contributed cash to a company bank account and then purchased the chair from that bank account. The company now owes you for that investment. Therefore, the expense claim liability still shows.

It might be easier to imagine that the chair was purchased by another employee who is not an owner. That employee would have to be reimbursed by the company. In fact, you can reimburse yourself from the company bank account after the client pays the invoice if you want. In that case, you would Receive Money and allocate the receipt to Expense Claims.

Another way is to use a journal entry to clear the claim. Debit Expense claims and credit Owner's equity or your personal capital account, depending on how you have set up the equity portion of your chart of accounts. In this case, you are leaving the investment you made by purchasing the chair in the company for future use, even though the customer has repaid you.

[ksh]

I opted for the Journal Entry. I debited the Sales Service account where I logged the purchase and credited the Billable Expenses account. This made my Sales Service just my true sales monies. The purchase still shows up in my Owner account as a credit. Does this all seem correct?

I just realized that logging it in the Sales Service was wrong. Thats an income account and not an expense account. Duh… So I created an expense account Customer Advance Purchase to handle any purchases/expenses using my own funds prior to receiving a retainer. Or should I be using a Company Owes liability account for these types of purchases?

[Tut]

You are making things harder than they need to be.

Your realization that you were wrong involving the Sales Service account is correct. If you have now recorded the chair purchase as a billable expense, it will not hit your income accounts at all unless you mark it up when you invoice. Then, the markup will show in the default markup account that appeared when you enabled the Billable Expenses tab.

You don’t need the customer advance purchase expense account, because you are going to turn right around and remove anything that goes there. This is the purpose of the Billable expenses account. Such expenses are assets, because you will generate cash from them in the future, after invoicing.

You have to understand the interplay between expense claims and billable expenses. Here is how it should work:

1. Make sure both Billable Expenses and Expense Claims tabs are enabled.

2. Create the customer in the Customers tab.

3. Purchase the chair with your own funds. Record the purchase in Manager using an expense claim. Allocate the expense claim to Billable expenses and the particular customer’s subaccount. This way, the purchase never hits your company expense accounts.

4. In the Customers tab, click on the Uninvoiced item for that customer and check everything you want to invoice. Then click on the button for a New Sales Invoice.

5. Edit the invoice to add any other items, such as service fees, allocating them to appropriate income accounts. Also edit the invoice if you want to mark up the chair. Now the purchase has been transferred to Accounts receivable. But the expense claim remains, because you have done nothing to clear it. That is, the company still owes you for your investment (not including any markup). At this point, any markup on the chair appears in income because you’ve “earned” it by handling the transaction for the customer.

6. When the customer pays the invoice, Receive Money in a cash or bank account, allocating the receipt to Accounts receivable and the specific invoice. The cost of the chair has been passed through to the customer, including any taxes you included in the price. Only your markup, if any, remains in income.

7. Clear the expense claim. You’ve said you chose to do this with a journal entry, debiting Expense claims and crediting an equity account.

All that takes longer to write or read than to do it. It’s actually fairly simple once you understand the process. By the way, expense claims can be combined for clearing purposes. I personally clear them monthly. But you could also wait until the end of the year. Technically, you could postpone clearing them forever, but that makes for messy financial statement.

My final recommendation is to open a separate business account as soon as possible. One thing the auditors look at is how you may have intermixed personal and business transactions. They are looking for fraud, of course. The more separate you can keep your business and personal expenses, the easier it will be to satisfy their curiosity.

[ksh]

Thank you so much. Opened the biz checking account a bit ago and am now just getting around to actual bookkeeping - catching up.

I have another question unrelated to this topic and I haven’t found an answer to it yet in the forum.

Since my biz checking has a monthly fee of $15, there have been a couple of occasions where I’ve had to use personal cash money to deposit into biz checking to cover that fee. How do I enter that? As a loan or a transaction tied to my Owner Draw which will lesson it? Not sure what the best way to do this is.

[Tut]

Whenever you put your personal funds into the company, that is a contribution of capital that increases your equity. So Receive Money in the business checking account and allocate the receipt to an equity account–either your capital account or owner’s equity (however you have that part of your chart of accounts set up).

Don’t forget that those banking fees are also an expense. Whenever the bank charges them, usually at the end of the month when they send the statement, record the transaction as Spend Money from the account, allocating to some expense account like Bank fees.

The fact that you were temporarily caught short of funds in the business account and had to augment by contributing more capital is completely separate from the fact that the bank charged you a fee.

The reason this is not an expense claim is that you contributed cash directly into the bank account. Separately, you paid a fee. But you might have had to contribute funds to afford buying stationery, too. Two transactions, not linked except by motive.

[ksh]

Question regarding the Expense Claim/Billable Expenses issue. Got it all resolved and it all makes sense. On the summary screen it shows nothing in the billable expenses spot as I’m assuming it should. When I click on the little dash mark it shows me the list of in/clearing out. I also see in the Owner Draw that is has credited that account.
Now to the question, in the list of tasks on the left side, the Expense Claims/Billable Expenses tabs still are showing their initial actions. I’m assuming that is correct to keep a running list (i.e. like a check book register if you will) of all the those tab transactions. Correct?
Sorry to keep bothering you with this but I want to make sure I completely understand this accounting stuff.

Geez something’s not correct. I followed your steps exactly - which were very good BTW. Now I don’t know how to deduct/reimburse myself from the biz checking via clearing out the Expense Claim. I tried a journal entry but it doubled the Billable Expenses tab amount and now it shows up on the Summary screen as the original amount. And I’m $137.79 over in my checking balance.

[Tut]

@ksh

I’m assuming that is correct to keep a running list (i.e. like a check book register if you will) of all the those tab transactions. Correct?

Yes. Whenever you drill down in Manager on a balance in any account (and a dash is simply a zero balance) you will see every transaction that contributes to that balance. The two accounts you mention typically build up and are then zeroed out by routine transactions. Going back to your checkbook register analogy, it’s the same way. Your current checking balance is the cumulative sum of all deposits and checks since it was opened.

@ksh

I don’t know how to deduct/reimburse myself from the biz checking via clearing out the Expense Claim.

If you wish to actually reimburse yourself for an expense claim, Spend Money from the Bank Accounts tab. Allocate the payment to Expense claims. This is equivalent to a debit to Expense claims and a credit to Bank Accounts. Think of it this way: when you reimburse yourself, money is actually leaving the company (even though you own the company), just as it does when you pay for your phone, buy business cards, or pay for advertising. The reason I didn’t cover this before is that you said you had decided to clear expense claims through journal entries, which I assumed meant you were clearing them to equity.

@ksh

I tried a journal entry but it doubled the Billable Expenses tab amount and now it shows up on the Summary screen as the original amount. And I’m $137.79 over in my checking balance.

No journal entry is needed to clear a billable expense. These are cleared by invoicing the customer. Read the Guide at Manager Guides.

[ksh]

@Tut

If you wish to actually reimburse yourself for an expense claim, Spend Money from the Bank Accounts tab. Allocate the payment to Expense claims.

The Expense Claims allocation is not available to select so I tried a few different accounts until I selected the Owner Draw/Me/Funds Contributed account. That seemed to put everything where it needed to go correctly. Sound right?

[Tut]

@ksh

The Expense Claims allocation is not available to select

If this was your experience, you are doing something incorrectly, because you can definitely select Expense claims when spending money from bank or cash accounts. What version of Manager are you using, and what operating system is your computer?

Can you please describe, step by step, every thing you do to arrive at the point where you say Manager is not allowing you to Spend Money to clear an expense claim? Also, did you properly select an expense claim payer when creating the expense claim? This could be a payer you created, an employee, or a capital account owner.

[ksh]

Thank you so much for all your help!
Manager 16.1.80
OS X Yosemite 10.10.5

I made the expense claim payer myself

Here is what I’ve done step by step per your guide

Here are the account options when I try to reimburse myself from biz checking (hope they came over in order)

So there is no expense claims option so evidently I’m not set up properly. And I also listed myself as a Customer.

[Tut]

Thanks for all the detail, @ksh. Now I understand what you did. So…several comments, in no particular order.

1. There is nothing wrong with the way you invoiced the $0.21 commission, but it was more work than necessary. And it may have given your customer more insight than necessary. When you created the sales invoice from the Uninvoiced item in Customers tab, rather than add the separate line for mark-ups and commissions, you could simply have edited the invoice price to $138.00. The difference from the entered, billable expense would have gone automatically to Billable expenses - markup. Then your customer would have no idea how much profit you were adding to the item and there would have been only one line item on the sales invoice. It seems this would be a very handy practice for an interior designer.

2. It looks like you renamed your Expense claims liability account to Company Owes Karen. Is that right? If so, that’s fine. You can name the account anything you want, and the current name reflects its purpose, but will get a chuckle from your accountant (if you use one) at tax time and will have a misleading name if you ever add any employees who make expense claims.

3. Assuming that you renamed your Expense claims account as above, then to clear the expense claim, you should allocate the payment from your checking account to Company Owes Karen, because that’s really your Expense claims account. Avoiding this confusion is a powerful reason not to rename that particular account.

4. Expense claims is actually what is called in Manager a control account. You can’t delete it once the tab is enabled. And certain transactions are posted to it without your direct intervention. So renaming it and thinking of it as something else could get confusing in the future.

5. You should definitely not list yourself as a customer unless you are actually going to buy services from your own company.

6. I’m assuming you are a single-member LLC, which the IRS regards as a sole proprietorship. In that case, common US usage would refer to Owner's equity rather than Retained earnings, which is a term commonly used for corporations. You can just rename the account.

7. If you are a multi-member LLC, the IRS will regard you as a partnership. Then you need to set up individual capital accounts for the members.

8. If you are a single-member LLC, understand that the Owner draw account will simply be closed to Retained earnings/Owner's equity at year-end. So it serves little purpose other than to give an instant summary during the year of how much you’ve taken out of the company. If you want, you could make contributions to and take draws directly from Retained earnings/Owner's equity.

Hope this helps.

[ksh]

Yes I think I’m on the right track now. Some of the tabs/titles came from some research I did online regarding what to call things. I switched it back so now its easier to clear up. I paid myself the reimbursement and did a JE to clear that account out to my Retained Earnings. Now I just need to add all my other transactions so everything looks much better!
Thank you very much!

[Tut]

@ksh

I paid myself the reimbursement and did a JE to clear that account out to my Retained Earnings.

That doesn’t sound necessary, although you didn’t give any details in your latest post. But you should either use a journal entry to clear expense claims to equity or reimburse yourself, but definitely not both. Exactly what did you do?