A/R & A/P question

[Linas Vepstas]

On Mon, Jul 30, 2001 at 05:08:04AM +0000, Tripp Lilley was heard to remark:
> I'm trying to get my head around accrual, accounts receivable, accounts
> payable, and so forth. If I have a "contract" (verbal, in many cases) with
> a client for $10,000 of work, and I'm going to bill them $5,000 up front,
> $2,500 on delivery, and $2,500 on final acceptance, how would I enter
> that? Would I make one giant $10,000 "receivable" dated when we agreed to
> proceed? Or would I make a receivable each time I invoiced?

In principle, you are only supposed to book the amount when its
invoiced.  However, that hasn't prevented others from doing it the other
way around.  In the early 90's, Dell got caught up in financial scandal
twice:  they had a habit of booking income (into the receivable account)
when the customer ordered equipment.  In principle, one shouldn't record
income until the equipment has been shipped/invoiced: since there's
plenty of time for the customer to cancel the order before its shipped
(and as industry practice would happen, most orders are cancelled before
they're shipped, not just at Dell, but everywhere).  This stunt allowed
Dell to report 'profits' when they weren't really there ... this stunt
also kept me from investing in Dell, which is my mistake, as I could
have been another Dellionaire by now ...

--linas


-- 
I'm very PUBLIC-MINDED, I'm helping a NIGERIAN get his $25,000,000 back!