Special Account

Is there any particular reason that special account voices cannot be linked to a profit and loss voice and only to a balance sheet one? I think that it could be useful.

Because they are control accounts, which can only be balance sheet accounts.

You say that Control accounts can only work for Balance Sheet accounts. But, it is critical that the opposite Cr/Dr that takes place in the P&L Stmt be linked to the subsidiary accounts set up for those Bal Sheet accounts.
Ie Assets such as Accounts Receivable have an automatic link to a Profit & Loss (eg Sales) account.
or Liability Creditors Payable has an automatic link to Purchases in Cost of Goods Sold (P&L) account.

You can’t have one without the other unless you are trying to avoid recording income or expenses - and that ain’t kosher!

In your example in the Guides for Special Accounts:

Example
The property manager receives rent from a tenant and records the transaction under the Bank Transactions tab as a receipt.

You demonstrate how rent collected from various tenants by the agency is allocated to the respective properties by using subsidiary accounts of an Payable Liability = Dr Cash $xx
Cr Trust Acc Payable $xx
Two Balance Sheet accounts but that is only half of the transaction. I believe you have missed a step here, because the agency would first have to record the RENTAL INCOME/RENTAL RECEIVABLE (Asset) by the tenant before they then pay out the rent to their landlord clients. Otherwise they would never know how much the tenant is in arrears.

It is the link to the SUB accounts of Rent Receivable (Asset) /Rent Income (P&L) that is crucial.

Could you please make Sub accounts available for the Income/Receivable relationship, which almost every business would need?

You overlook the fact that a transaction posted to, for example, Accounts receivable, is not automatically linked to any account, but could be linked to many others. For example, a receipt against a customer’s Accounts recievable balance (a credit) could debit any of your cash or bank accounts. This would never touch a P&L account. That linkage was established upon invoicing, at which time the debit to Accounts receivable could have been balanced by a credit to any income account. And payments to suppliers do not automatically affect a cost of goods account. You can purchase many things besides inventory.

Remember, when you enter a single transaction in Manager, you are automatically making double entries. No accounting principle is violated.

You are missing two points here:

  1. The example you point to is the record of the receipt.
  2. There is no requirement that rent be received before distribution are made to the landlord clients. Such situations depend on many factors, none of which restrict the actual accounting. The distributions may be governed in the short term by cash flow, but that is immaterial to the accounting process itself. Nothing prohibits an entity from going into debt to maintain an agreed distribution plan.

Why do you think this must be built in? And why do you think Manager’s existing capabilities for designing the chart of accounts are inadequate? Have you considered tracking codes for monitoring income/expenses for various properties?

Yes, I use Tracking Codes and they are great.
The example you provided was a receipt of Rent, as I acknowledged, Dr Cash, Cr Trust Account Payable
but, that means no record of the Accounts Receivable. Your illustration might mislead a lot of readers who think they can operate their Income through the Balance Sheet.

The simple way, and I experimented, that Special Accounts offset the receipt against the relevant sub account/s, is fantastic. It would be so ideal for P&L Income and Expense items which have components.
Eg. A customer buys three items A, B, C on credit.
This sale is recorded as an Accounts Receivable which can be assigned to the three departments (for eg):
Dr. A/c Recble - A
Dr. A/c Recble - B
Dr. A/c Recble - C
Cr Sales Income - A
Cr Sales Income - B
Cr Sales Income - C

Tracking can be still used for reporting the Departments.

But, what if the customer pays an odd amount, or decides to PAY OFF their account in instalments.
The Tracking system does not accommodate the allocation to the departments other than by the ratio of A:B:C in the amount paid.
So, if A were $100, B $200, C $300. Total Sale $600 but the customer paid $500 by mistake, the accounting system would allocate the receipt on a pro rata basis and that gives all sorts of odd fractional amounts. 500/600 x $100, 5/6 x $200 and 5/6 x $600. I won’t complete the maths here as you understand what happens. And the resultant P&L Income reported is difficult to explain to Directors/CEO.

But, by having the invoices broken down into their SUBSIDIARY Accounts Receivable, the bookkeeper can assign the receipt/payment by customer to the products in WHOLE dollars and leave a balance, also in whole dollars.
This would be an amazing improvement to your software and you would achieve something that would take away the frustration on this point of every user of accounting packages such as MYOB, ZERO, QUICKBOOKS.
It puts the bookkeeper in control of where monies received are allocated and that is very very important

Please consider this in your next upgrade. Your product is amazing and I would buy it from you if you had this feature!!!

Tut, I was fully aware that your Special Accounts real estate example was of a receipt only as I mentioned that the agency would ‘_first_have to record the rental receivable income…’. And, the reference i made of the opposite type of Credit transaction - the Purchase of Stock - was just an illustration. Yes, you could Dr Expense and Cr Accounts Payable for many things like wages, Tax liabilities, and so on. That isn’t important.

Your example in the GUide is a cash receipt without any preliminary Receivable, as per normal business. But rather, you have illustrated using a distribution from a Liability and you then justify by saying that sic., ‘distributions can be made even if an entity goes into debt, just to maintain an agreed distribution plan.’

That was not the point of the discussion raised about special accounts. I would love to see special accounts available to be set up for any Revenue (P&L) account of the business.

The example was for a direct receipt. If you had first created an invoice, then there would be an account receivable, and the posting of the receipt would have been to Accounts receivable. The invoice would have been posted to the special accounts.

Nothing in Manager is recorded overtly to Accounts receivable based on actions of the user. That half of the double entry occurs automatically based on the fact you have selected a customer on the sales invoice.

Manager will allocate receipts from the customer either (a) to the accounts/subaccounts and invoice numbers you select or (b) if you leave the invoice number blank to the oldest due date first. There is no prorating by ratios as you describe. And nothing confusing happens that needs explaining.

Yes, I do, and it isn’t what you apparently think. You should try it out in a test company.

They already are broken down into the subsidiary ledgers in Accounts recievable. That is what customers are: subsidiary ledgers. The bookkeeper can allocate payments however she wishes.

Manager already gives full control of this.

You can use it for free now. The feature has been there for years.

No, the Guide, in the portion you quoted, illustrates a receipt into a liability account, not a distribution from one.

This was not a justification. It was a totally separate point, emphasizing that there was no requirement that the receipt precede a distribution.

Tut,

Let’s focus on the advantage of Special Accounts for P&L items, ie Revenue, as we are going around in syntax misunderstandings in our correspondence and I don’t want that Tut.

But, you are mistaken about the pro rata allocation of receipts not taking place when an invoice has many items/services and a customer over or underpays.
_“There is no prorating by ratios as you describe. And nothing confusing happens that needs explaining.”

In another Forum topic, you pointed out that pro rata allocation IS the way all accounting packages work when I have asked about trying to allocate receipts to different departments. The issue I raise occurs when a customer under or over pays, but Special Accounts for P&L Revenue would be SO useful even if customers pay exactly the correct invoiced amount. I come back to this.

Also, I have noticed the new version does not automatically allocate overpayments from the oldest to the newest invoice. A bookkeeper has to assign to specific invoices. It was better the other way. Are you suggesting that the [Invoice] selection field when receipting be left blank and the system will do it for us? It doesn’t: I have mistakenly not selected an invoice one or twice and found that that invoice ends up showing as UNPAID. the automation you mention doesn’t work, I feel. But that is still not my point here (even though I would like to see that LIFO basis of allocation returned if you can).

Let’s work through the scenario that special accounts would be perfect for in P&L accounts:
Customer UNDER or OVERpays on a Credit Sale (automatic record to Dr Accounts receivable Asset when ‘Sales Income’ is chosen). The sale had many items bought by the customer from departments. A, B, C. So, when they pay off an amount that is not exactly the same as the Invoice, Manager (and MYOB etc) will apply the $receipt on a pro rata basis, as illustrated earlier.
Have you forgotten that? Test it yourself.
Item A gets 1/6 x $500 paid, B gets 2/6, C gets 3/6 based on the value of the sales to A, B, C. The Revenue reported in P&L will have
A dept $83.33;
B $1666.67, and
C dept $250.
Not what the Accountant wants to see reported. We want to be able to assign the underpayment of $500 to A $100,
B $200 and
C $200
such that only Product/Dept C is still owed a nice clean $100 instead of A owed $16.67, B $33.33 etc.

Can’t you see the difference and benefit of Special Accounts would allow allocation of the receipt to A B C just how we want to - the control we seek. Manager does not allow it now.

How hard is it for your IT coder to make Special Accounts apply to P&L Accounts as well as Bal Sheets? Please.

1 Like

Can you provide a link to where you believe I have said this? The only pro rata application in Manager I recall discussing is when you use the Freight-in item to distribute shipping costs across a number of purchased items. I have, at various times, written that there were problems with users’ requests for calculating profitability on individual sales invoices or in similar circumstances because you could not make pro rata distribution of all relevant expenses to an individual invoice.

I definitely have not done this, because I make no pretense of knowing how all accounting packages work, except in their adherence to standard accounting principles. Pro rata distribution of costs in not one of those principles.

I did not say it did. My exact words above were, “Manager will allocate receipts … if you leave the invoice number blank to the oldest due date first.” [Emphasis added.] In other words, if you specify the invoice, the receipt is posted only to it, even if that means overpayment. If you don’t, Manager will roll the excess forward to the next oldest due date. See this Guide for more information: https://guides.manager.io/12951.

I am saying you have the choice I mentioned, to specify the invoice number or not. The program does different things, depending on which you choose.

I believe your recollection is incomplete. The invoice will remain unpaid if you forget the customer or if other invoices were open if you forget the number. In the latter case, the payment could be applied to an invoice with an older due date.

There never was such an allocation method. It has always been oldest first. Originally, it was oldest issue date. Later that was changed to oldest due date. The only change within the last two years has been that invoices can become overpaid if the number is specified.


Now, let me address another subject. You neglected to mention one critical factor about your example. It was using cash basis accounting. Because income is recognized only when payment is received under cash basis accounting, Manager does proportionally recognize reduced or increased income across all line items on a sales invoice if there is incorrect payment. It also proportionally changes quantities on inventory items, because you have over- or under-sold them.

This is why cash basis accounting is not recommended for businesses with inventory. It does not completely represent either position or performance. And that is the reason it is illegal in some jurisdictions to use cash basis accounting if a business holds inventory. Technically, Accounts receivable and Accounts payable do not exist under cash basis accounting.

Theoretically, when you have sold on credit, the sales invoice debits the total amount to Accounts receivable and credits whatever income accounts apply to its line items. From there on, the distinction between line items vanishes. The receipt credits Accounts receivable, not the line items. You distort this accurate recording of position and performance when using cash basis accounting.

So you seem to want to compensate for that distortion by extending special accounts to the P&L statement. You don’t need to. You just need to use accrual basis accounting. You say Manager does not allow the control you seek. That is not the case. It is cash basis accounting that does not allow the control you seek. If you switch to accrual basis, the income allocation occurs at invoicing, without special accounts, without tracking codes, etc.

No one is my IT coder. I’m a forum moderator, not the developer.

Dear Tut
Thank you for your lengthy reply.

I have tried to search back through the forum but it is not revealing the discussion that will demonstrate my point.

Scenario - Customer is invoiced two or more products/services and under pays.

That underpayment gets allocated on a pro rata basis to the respective items so that the cash received by each department is a proportion of each service. The bookkeeper cannot allocate to one service in priority over another unless each service is separately invoiced (which is not common practice and very clumsy). All accounting systems do this pro rata allocation and you and I discussed this before. True, it is not a signficant problem for accrual accounting because only the Receivable is reported in the P&L. But, I need to report on a cash basis of monies received to each department. The pro rata allocation gives odd $dd.cc in the P&L (which I report as Stmt of Receipts & Payments).

I feel that the inclusion of subsidiary accounts for revenue would overcome this, just like you illustrated in the ASSET/LIABILTY scenario. I noticed many other users have asked for Subacounts for the P&L. These subaccounts could be selected when Receipting Money for a Customer and the entity’s various departments correctly credited with cash received. THis is important also for GST analysis (although not my priority). Could you seriously consider making subaccounts for P&L items please?

Automatically assigning customer receipts to old invoices

And, I have accidentally not selected an invoice to offset by a customer receipt but that invoice never gets debited and remains in the list of invoices with a balance owing from the customer. Does the scenario you describe only work if ALL invoices are never selected rather than just one, by mistake?

Fully paid invoices

When invoices have been fully paid, it would be nice if the program does not offer that invoice in the pull down list for that customer, in RECEIVE MONEY. Is there anyway you can remove it from the drop down menus so we don’t accidentally assign payments against a fully paid invoice?

Custom Reports or Cash Flow Report

Are you likely to design a Cash Flow report in the future?

Always appreciate your responses Tut, but note that I am a CPA and fully understand the system’s underlying Dr and Cr so don’t bother typing up the basics as I feel bad about you wasting your time!!

Other users have asked for hierarchies in the chart of accounts to consolidate presentation of balances. You are asking for special accounts, an entirely different thing.

No. Undesignated receipts will be applied to invoices with balance due, oldest due date first, if any are recorded. If you never record another undesignated receipt, however, an invoice could remain unpaid.

I am sure this could be done, but I don’t think it will be done. Imagine a situation where a customer sends a duplicate electronic payment, instructing that it be applied to a specific invoice. You would not want that payment automatically applied to some other invoice. And the money has already been received. So the proper place to post it is against the indicated invoice. That makes that invoice overpaid and simplifies resolution of the overpayment.

Hello again Tut,

Heirarchies in P&L I have achieved through Grouped accounts. I must have misread other people’s requests for Special P&L accounts (let’s call them Subsidiary ACC) within the topic on Special Accts. Your answers to those people didn’t refer them to Chart of Accts Grouping from memory.

Anyway, it is your program and I love it except for the pro rata allocation of underpaid invoices that contain more than one product or company Dept.

Will have to do it the hard way of splitting the invoice and assigning the receipt in two tranxns. Not desirable for bank reconciliation or when printing customer statements.

One last Q: why did you remove the overflow method of allocating overpaid invoices to the next invoice?

Cheers

Michele A

It hasn’t been removed - read the guide and re-read the response provided above (bracket text added):

“if you specify the invoice (number), the receipt is posted only to it (that invoice), even if that means overpayment. If you don’t (specify the invoice number), Manager will roll (pay) the excess forward to the next oldest due date. See this Guide for more information: https://guides.manager.io/12951

Also from memory, I don’t believe I participated in those discussions. I don’t really have an opinion on account hierarchies, because I don’t find them necessary. But I don’t oppose them. I consider them only as variations in what is displayed on the Summary page.

No, it most certainly is not. As I’ve told you before, I am a forum moderator. I don’t own any portion of the program or the company behind it, and I have no control over development.

I did not, nor did the developer. I’ve already answered this twice in this topic. And @Brucanna has reiterated my point.