End-of-Year Accounting for Daycare Service

[Terry Morse]

Thank you to both Michaels for responding.

Michael Hendry wrote:

>I don’t use invoicing myself, but I think your solution is to be found in >“Accounts Receivable”.

When I add a charge to an invoice, I enter “Income:Sales” as the Income Account. When I post the invoice, I enter Accounts Receivable as the “Post to” account.


Michael Novak wrote:

>Terry, the FIRST thing to determine (and you didn't tell us) is how she 
>files taxes, "cash basis" or "accrual basis".

As best I can determine, accrual. The government payments for December, which my friend won’t receive until this month, are counted as 2015 income.

[Deletions]

>Your problem is the delay in the "government subsidy" part, yes? 

[Deletions]

No, the government pays in a reasonably timely fashion. The customer is the problem. Besides a copay, she owes the difference between what my friend charges her and the amount of her government subsidy. I have been entering the differentials in the invoice as charges, with “Income:Sales” as the income account. Thus, they show up as being owed in the tax invoice, but also as income in the Profit & Loss report, though it hasn’t been, and probably never will be, received.

The accounting issue then is that we want the amounts of the differentials owed to be included as charges in the customer’s end-of-year tax invoice, so it’s clear that she still owes this money, but not as income in Profit & Loss, since my friend hasn’t, and probably never will, receive them. As a work-around, I have created a separate account, “Actual payments received,” to which I credit all payments she actually receives. This should give the tax preparer enough information to go on, but it is an inelegant solution.

My question, then, is: going forward in the new year, is there a better way to structure the business account and to record charges and payments? Is invoicing not the best way to go?

Thank you,
Terry

>On 1/12/2016 7:55 PM, Terry Morse wrote:
>> I'm helping a friend with the accounting for her daycare business. [Note: I am not an accountant.] Some of her customers pay on a monthly basis, some weekly, some daily, and some hourly. One customer receives a government subsidy for daycare and owes a monthly copay plus a variable monthly differential. This customer regularly pays the copay, but is usually in arrears on the differential. Thus, my friend's actual income is much less than she should have been paid. This has complicated the end-of-year accounting for tax purposes.