Invoices

[Maf. King]

On Friday 18 December 2009 14:00:28 BGP wrote:
> Maf. King wrote:
> > On Thursday 17 December 2009 22:23:21 BGP wrote:
> >> I probably don't understand how to create an invoice properly
> >> but....here's what I've done-
> >>
> >> I create an Invoice that includes the hours I've worked and the amount
> >> per hour.  That works fine.
> >>
> >> Then I include the material charges for the work done.  The material
> >> charges are entered in the description area.  But, I can't include
> >> Expense accounts in the invoice.  So, I put the a MINUS sign next to the
> >> material charges and it all works out well.
> >>
> >> Is that the way to do it or is there another way?
> >
> > Hi BGP,
> >
> > I think that you are wrong to be trying to use an expense account for
> > materials in an invoice. Surely a -ve line total reduces the invoice
> > total?
>
> "expense account"  I probably should've said Income account as that's
> the line I enter my labor costs on in the invoice.  There are no other
> choices I can make for the invoice.

Hi, 

Well, you said expense account, and noted that you couldn't select one, so I 
kinda figured that you meant expense account.

I think that you want income accounts something like
Income:HourlyLabour
Income:PartsSold
and maybe others, depending how your business works.
>
>
>  I'm probably doing the wrong thing but the results work out well.  I'm
> probably making a mess for myself that'll appear in the future if I
> don't do it correctly now.
>
> > It sounds to me that you are trying to "reduce" your expense account
> > totals by selling materials on, and that is Not The Way To Do It.
> > You buy stuff. You sell it on.
>
> "sell it on"....what does that mean?

If you run a clothes shop for example, you "sell your stock on" to members of 
the public.  That is what I meant - maybe it is a British expression, if so, 
sorry for the confusion.


>
> > Taxable Profit = Total Income - Total Expenses
> > (simplistically, at least).  Your way sounds like you aren't selling
> > materials, but actually reclaiming expenses, and that doesn't really
> > belong on an invoice.
>
> Expenses are part of any job.  You buy material for a job and that
> becomes part of the cost you have to get paid for along with your labor.
>

Well, yes, of course!  But since I don't know anything about what your 
business does, there could be several possibilities for how you charge for 
those expenses.

My business buys raw materials and produces completely bespoke products for my 
clients.  I quote for each job, and (hopefully) invoice that total at the end 
of the job.  my client never knows what my labour costs / material costs / 
delivery expenses / profit splits (etc.) are.  Hence, I don't deal with 
invoices in the way which I think you do.  That's also why I'm hazy on the 
other ways!

Another approach, appropriate to eg. repair workshops (Vehicle, Computer etc) 
is that you will charge for $x per hour and then parts on top of that.  Say 
you diagnose a HDD failure in a PC.  you sell the customer a new one from 
your stock and fit it.  That new part should go through your asset accounts, 
even if you go to the local hardware retailer and buy it in the same day that 
you fit/sell it.   You have a line on your invoice for Income:labour and a 
line for Income:Parts - this is where the COGS stuff comes in, but I don't 
exactly understand well enough to do it (or explain it)!

A 3rd option, lets say that you are a management consultant.  You are 
unexpectedly required to fly to the client's head office and "do your thing" 
(labour cost).  The flight _could_ be treated as a reimbursable (or 
reclaimable) expense, although that scenario may be more usual for employees 
than external contractors. This way you need to track the difference between 
what you have spent and what they have repaid, which is not strictly Income & 
Expense and shouldn't be on an invoice which would be for your time only... 

> > I don't charge materials on in my business so I'm hazy on the exact
> > details here, but IIRC you may need a COGS (cost of goods sold) account
> > which balances transfers between Income:Sales, Assets:Stock-In-Hand, and
> > the relevant Expense accounts.
>
> IIRC....what's that?  Do you mean IRS or Title 26?
Sorry, Email shorthand. I often use on this list:
IIRC = If I Recall Correctly
AFAIK = As Far As I Know
IANAA = I Am Not An Accountant
HTH = Hope That Helps
HMRC = Her Majesty's Revenue & Customs (British for IRS!)


Anyway, HTH & IANAA!
Maf.