Profit & Loss + Billable Expenses

I’m struggling to figure out how to report on Billable Expenses for tax purposes.

I used Billable Expenses extensively in 2016 but the 2016 Profit & Loss report doesn’t include them, and I can’t find any other report that does. Where can I find a report that shows my total income for the year including billable expenses?

It may be that I’m just not using Billable Expenses “correctly” in which case I’m completely open to suggestions for how to account for this type of expense better.

For example, suppose I buy $1,000 of custom printed shirts for a specific client’s event. I don’t really want to track that as “inventory” since I already know every shirt is going to the same client. Billable Expenses sounded like the right fit for me. I can just add the expense to the next invoice with any markup as a separate line item.

But come tax season I still need to account for that $1,000 under gross income and cost of goods sold. The Profit & Loss report hides that information as far as I can see.

Is there a different way to track expenses or report on them that I should explore?

Billable Expenses are for when you purchase an item on behalf of the client and are then expecting reimbursement of that purchase from the client, then the purchase & reimbursement aren’t P&L items - only the mark up is shown as income.

If you like, you advanced funds for the purchase and then got refunded those funds - not a P&L transaction.

I certainly understand that motivation, but again where I’m stuck is on the tax implications. Regardless of how we characterize the advancement and reimbursement for discussion purposes, at the end of the day if I invoiced a client for $1,000 in billable expenses and $9,000 of other goods and services, the 1099-MISC they file is going to say “$10,000”. So I must report $10,000 of income (and include the $1,000 in my cost of goods sold).

What I can’t figure out is where/how to derive that $10,000 figure in Manager without taking Profit & Loss and then individually adding up billable expenses for the year.

Sorry, I don’t have any working knowledge of 1099-Misc but on a quick read of the instructions it states under Specific Instructions - Point 4 Other income payments (box 3);

Their income payment would be 9000 as the other 1000 was a reimbursement. The point here is that its income payments not total payments that need to be declared. But others with a better knowledge maybe able to clear that up.

PS: on my reading if they entered 10,000 then they have completed the form incorrectly

@Brucanna is correct. Compensation for services is reportable, not pass-through expenses.

So it sounds like the bottom line is that Billable Expenses was designed for a different purpose than how I’m using it.

In my example the payment I received for T-shirts is definitely income and is correctly reported on the 1099-MISC, since it’s no concern of the client how I sourced those goods or at what cost (they just know I invoiced them for $10,000 for their event). What I really need is a way to track that I’m incurring expenses for a specific client so that I can easily invoice those expenses later, while still being able to record those payments in summary at the end of the year.

Is inventory the only option for this? Any other tricks? I’m open to any and all ideas for how I ought to be recording these transactions in Manager; to date I’ve really just been clicking options that seemed to do what I needed them to do so I’m happy to change tactics completely if needed.

Inventory could be used albeit a bit clumsy as you may purchase items such as “Hiring” which doesn’t fit comfortably into inventory, but could be recorded as quantity of “1”. The inventory can be grouped by either using codes or the event name - AAA T-shirts, AAA Balloons etc. Once an event is completed you could recycle the inventory Items to another event via a name change or make them “inactive”.

An alternate which is probably more correct accounting would be to store the costs as “Events-in-Progress”

So you would do this:
a) Activate the Special Accounts tab under Customise.
b) Under Settings - Chart of Accounts create a Balance Sheet Asset account called “Events-in-Progress”, tick the Control Account box and select Made up of Special Accounts.
c) Under Special Accounts tab create the Event Account and select the Control Account - Events-in-Progress.
d) All expenses would be allocated to the particular Event Account
e) On the completion of each Sales Invoice you would create a Journal to transfer the costs from the Special Account to the P&L expenses accounts.

A third option would be the use of Tracking Codes, which are assigned while processing the Purchase Invoice. When it comes to the Sales Invoice, produce the P&L report for the particular Tracking Code to get a list of expenses.

Which method needs to be ascertained by you based on the volume of activity per event but:

Inventory Pluses
On creating an inventory item a “Custom Expense Account” can be nominated so when the item is entered onto the Sales Invoice it will be transferred automatically to the correct P&L expense account.

Inventory Minuses
Each inventory item needs to be created separately before the Purchase Invoice can be processed.

Special Accounts Pluses
Only need to create one account per event before Purchase Invoices can be processed.
Total costs spent to date can be easily seen (assuming no progress invoicing) or since last Invoice

Special Accounts Minuses
Have to process a Journal separately from the Sales Invoice to transfer the expenses to the P&L

Tracking Codes Pluses
Items expensed directly to the P&L on processing the Purchase Invoice.

Tracking Codes Minuses
P&L report is distorted with expenses until the Sales Invoice is created.
If in-progress Sales Invoicing is done it could difficult to sort out what has and what hasn’t been invoiced.

To summarise, if each event has only low levels of “Inventory” then this is probably the most efficient but if high levels then Special accounts comes in to its own. Tracking Codes a very distant third.

EDIT: if selecting the Inventory method, then the Inventory on Hand account could be re-named to Events-in-Progress.