Creative accounting

Ian Konen iankonen at gmail.com
Tue Oct 1 10:13:07 EDT 2013


On Tue, Oct 1, 2013 at 6:18 AM, Kim C. Callis <kim.callis at gmail.com> wrote:
> After a long hiatus, I have decided to start using GnuCash for both
> business and personal use. As I was setting things up, I realized that
> I had a recent invoice that I needed to submit. I am doing work at
> clients hotel, and he is charging me rent for one of his room (Yes, a
> crappy deal, but it discounted).
>
> So I get ready to send out my invoice and it makes is way to accounts
> receivable.

Are you running your own business and creating invoices with GnuCash,
or are you an employee / subcontractor and submiting a work log to an
actual accounts receivable department or person?  This sentence sounds
like the latter, and if so, I think they should probably answer most
of the rest of your questions about how to credit the account for the
rent you owe the client and whether it should be part of the bill or a
separate entry entirely.


Assuming you're doing everything in GnuCash, there's no magic, but just:

1.  Create the rent expense account by going to the main accounts tab
and selecting Actions->New Account and make sure it is a subaccount of
"expenses".  I am not an accountant, but I would definitely advise a
separate business rent account from personal rents (your house in a
warm climate).  Assuming you frequently travel to client sites and
usually pay for a hotel out of pocket, that's going to a be a normal
cost of you doing business, and I think most people put that under
Expenses:Travel, but whatever you want to call it, you really want to
keep business and personal expenses separate.  The only thing unusual
here is you can skip the involvement of a credit card account (one
presumes you would usually use to pay for a hotel).

2.  If the value of the rent is to be applied directly to accounts
receivable, it's a standard, simple transaction: for $100 rent, credit
the accounts recievable $100 and debit the expense account $100.  No
funny money: the value is in the rental stay.  If you're doing
invoices, though:

The client charged me rent, so I want to apply that rent
> to accounts receivable to reduce the total invoice. Since I already
> have a house that rent in a warmer clime, I am curious on what magic
> do I have to do so that setup a rent expense, plug in the money that
> would have been give for rent and apply it to accounts receivable
> against the client bill?
>
> Or would it be easier to just add the rent amount directly to the
> invoice to reduce the invoice price? The problem that I have there is
> that there is no clear tracking of the rent expense at the client site
> (because this is all funny money, meaning that it is not coming from
> an asset account). I realize that I can't do it as a accounts payable,
> since again, it is not real money, but the appearance of cost.

I really wouldn't call it "not real money" or "funny money".  If
you've agreed to the value of the rent and the value of your work it's
perfectly legitimate to have those cancel rather than standing in
person handing the same wad of cash back and forth while you tick off
who owes what.  I'd say the entire point of using an accounting system
is for complicated situations like this.

3.  If you're using GnuCash's business features and generating
invoices, I'm not actually sure what the best way to itemize that
rent, but I think you can show it on the invoice directly as a line
item with a negative cost, or you can leave it off but apply it as a
partial payment towards paying the invoice.

First create a liability like account like "customer deposits" or
"prepayments".  Credit $100 (assuming that's the rent) to the
liability account and debit it to the expenses:business rents (or
expenses:Travel ...wherever you would normally account for a hotel
booked for business purchases) when you stay in the hotel.

3a.  If you want the invoice itself to show the rent and subtract from
the total you're charging for the work, you can enter it as a line
item with a negative value.  Under "income account" select that
liability account and put in a negative value for the unit price so
the total comes out to the total rent.  Apparently you cannot select
an expense account directly under "income account", but it's probably
more accurate to say you accrued the rental expense when you stayed in
the hotel so an expense -> liability transaction dated at the end of
your stay is a reasonable.  The Action category doesn't have "days" as
a default, but you can type it in by hand if you want it show
something like $20/day for 5 days.

3b.  If you don't want the invoice to show the rent, you can apply the
value in the prepayment account as a partial payment towards accounts
receivable.  If he owes you $1000 for the job and you owe him $100 for
the rent, you can select the invoice, click the "Pay invoice" button,
change the amount to $100 and make the transfer account the
liability:Prepayments account.  Then later, when he writes you a check
for the other $900, you can enter a payment again and the transfer
account would be assets:checking account.

I don't have a strong opinion on which is the better or more
appropriate way to do the accounting, but the numbers will work out
correctly in the end either way.  There may actually be a standard
practice that suggests one is better than the other, or tax
implications (most U.S. states collect a sales tax on hotel stays) so
yeah, consulting a real accountant might be needed, but whatever (s)he
suggests, you should be able to enter it in GnuCash.  If you choose 3b
(invoice doesn't show the rent), you'll probably want to print out a
"Customer Report" and send that instead of the invoice (or perhaps
both).  The Customer report will show various prepayments and deposits
so that he knows what the final amount he owes you is and that it
accounts for the value of the hotel stay.


>
> Any pointers would be greatly appreaciated! I don't want to have to
> start building out GC and have to tear it all down again.
>
>
>
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-- 
Ian Konen
iankonen at gmail.com
www.linkedin.com/in/iankonen
978-821-649


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