[GNC] How to Reclassify Invoice Amounts

[tbalaban]

I run a service organization that contracts with others on per item basis.
Therefore the amount I invoice is much greater than the amount we retain.

How do I reclassify the amount invoiced so that the various expenses related
to the transaction are booked but not shown on the invoice?

E.G., a service fee is $3.65 for 61 units or $225.65. Of this 1.75% may go
to PayPal, $192.15 will go to our insurance company, 13.73 will go to a
revenue-sharing partner leaving $15.82.

Before I started keeping track of sales by invoice I would just splt the
transaction. Bow that I'm using the A/R part of the system, can I do the
same thing but have the customer only see the amount due and not the
underlying splits?

Many thanks for any guidance you can provide.



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[Adrien Monteleone]

You should really speak to a local CPA to get a clear direction and picture of how you need to handle the various issues particular to your jurisdiction.

Revenue and expenses should not be in the same transaction and expenses should certainly not be on an invoice except in rare cases where you pass them on directly with the customer’s knowledge that you do so. (freight and other logistical expenses are sometimes directly invoiced)

The revenue sharing would likely be handled as a pass-through similar to sales taxes. You’ll book a transaction to something like a ‘revenue sharing due’ liability account. But unlike sales taxes, it should be handled separately and should not appear on the invoice. It might instead be handled like a dividend payment.

PayPal is just an expense. You can book it each time, or from a monthly statement similar to how you would record merchant fees for credit card receipts.

The insurance amount is an expense and should be booked when you ‘use’ it. Many insurances are usually pre-paid, booked as assets and then expensed when they are ‘used’. Adjust for your case as needed.

The remainder is just left over after everything else. You generally don’t record it separately. (unless you book Retained Earnings periodically) You discover what it is via an Income Statement. (P&L report)


Your invoice should result in:

Dr. Assets:Current Assets:Accounts Receivable $225.65
Cr. Revenue:Sales $225.65


The receipt of payment would be:

Dr. Assets:Current Assets:Checking $225.65
Cr. Assets:Current Assets:Accounts Receivable $225.65


Then you’ll create something similar to each of the following:

Dr. Expenses:Bank Fees $3.90
Cr. Assets:Current Assets:Checking $3.90

Dr. Expenses:Insurance $192.15
Cr. Assets:Current Assets:Checking $192.15

or

Dr. Expenses:Insurance $192.15
Cr. Assets:Current Assets:Pre-paid:Insurance $192.15

Dr. Revenue:Sales $13.73
Cr. Liabilities:Revenue-Sharing Due $13.73

When you actually pay your revenue-sharing partner:

Dr. Liabilities:Revenue-Sharing Due
Cr. Assets:Current Assets:Checking

Regards,
Adrien

Post by tbalaban
I run a service organization that contracts with others on per item basis.
Therefore the amount I invoice is much greater than the amount we retain.
How do I reclassify the amount invoiced so that the various expenses related
to the transaction are booked but not shown on the invoice?
E.G., a service fee is $3.65 for 61 units or $225.65. Of this 1.75% may go
to PayPal, $192.15 will go to our insurance company, 13.73 will go to a
revenue-sharing partner leaving $15.82.
Before I started keeping track of sales by invoice I would just splt the
transaction. Bow that I'm using the A/R part of the system, can I do the
same thing but have the customer only see the amount due and not the
underlying splits?
Many thanks for any guidance you can provide.
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You ca

[Tom Balaban]

Many thanks, Diane.

I was able to accurately reconcile both PayPal and our checking account
monthly using the old method as I would post each transaction from the
respective statement. It worked until we started getting payments from a
3rd-party servicer. Then I end up with a overpayment or a short fall
depending on what happened at an event.

That meant tightening things up a lot ... a good thing ... We now have
more entries but much better information.

Tom

------ Original Message ------
From: "Diane Trefethen" <***@wakerobinranch.com>
To: gnucash-***@gnucash.org
Sent: 12/8/2018 2:50:51 PM
Subject: Re: [GNC] How to Reclassify Invoice Amounts

Unless I misunderstand your situation, you are a small business, do things pretty simply, and do not have a large accounting dept. If this is so, then you don’t need to reclassify anything. The total billed for your service(s) is Sales and all the “various expenses related to the transaction” are booked as expenses when you enter the bills from YOUR vendor(s), if you are on the accrual basis, or when you pay your bills, if you are on the cash basis. [Side note: One thing you said worries me. “Before I started keeping track of sales by invoice I would just splt the transaction.” IF you “split the transaction” by breaking the invoice total down into income, fees, shipping, etc, what did you book when you paid your bills for those items? Take PayPal. If you used to book $1.75 of the invoice as PayPal Expenses AND you booked your bills from PayPal as PayPal Expenses, then you booked each PayPal fee twice. This would badly distort your P&L statement because you would be showing less revenue than you were actually receiving and more expenditures than you actually incurred.]
Be forewarned that Adrien’s additional GL posts like
Dr. Expenses:Insurance $192.15
Cr. Assets:Current Assets:Checking $192.15
are a mistake if you book insurance, PayPal, and other expenses when you enter or pay the bills for those items. Doing it a second time will a) throw your checking account out of balance and b) double book your expenses which the IRS will NOT be happy about.
There is a misconception that accounting programs can do everything. They can’t. There are many things that are better tracked separately using spreadsheets and then booked into the accounting program with end-of-month GL entries, like pre-paid insurance and accrued interest, for example.
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