Apparent inconsistency between reports for a single customer

[David Cousens]

Hi Terry


On 06/09/14 14:45, Terry Morse wrote:
> Thank you for responding, David.
>
> The two main goals I had in setting up the account is to record the business's income, and to be able to generate an annual tax statement for customers, showing their charges and payments (the service my friend offers is tax deductable).
>
> I list the charges each customer accrues on individual invoices to the income account Income:Sales (to track her income) with the transfer account, "Assets:Accounts Receivable." When the customer pays the amount due (generally on the same day it accrues), I enter the payment using the Post To account, "Assets:Accounts Receivable," and whatever bank account the payment goes into as the Transfer Account. Have I overcomplicated the structure of the account and created the seeming inconsistencies?
In your original description of your problem you mentioned creating 
customer invoices with the transfer account as Accounts Payable rather 
than Accounts Receivable.  If it was the former, then that would cause 
problems,  but otherwise,  if the Accounts Payable reference was a typo, 
then your description above  looks OK and should work fine. You may not 
be using the formal accounting labels 
(Edit->Preferences->Accounts-Labels) but if you switch to the formal 
accounting labels on the accounts, the debits and credits should be as I 
described them in my original post when you look at the transaction 
splits (right click then select Split Transaction while  an entry in the 
relevant account is selected). You can easily change this option back if 
you prefer to work with the Deposit/Withdrawal labels.

In double entry accounting Debit and Credit don't always have meaning 
you would normally associate with them, as whether they are an increase 
or decrease in the balance,  depends on the type of the account (Asset, 
Liability, Equity, Income or Expense) .  Any double entry transaction 
always consists of debits to one or more accounts and a credits to one 
or more other accounts where the sum of the debits is equal to the sum 
of the credits.
>
> Thank you,
> Terry
Hope this helps

David
>
>
> -----Original Message-----
>> From: David Cousens <davidcousens at bigpond.com>
>> Sent: Sep 5, 2014 12:58 AM
>> To: tmorse at teleport.com, gnucash-user at gnucash.org
>> Subject: Re: Apparent inconsistency between reports for a single customer
>>
>> Hi Terry,
>>
>> If this is a customer of the business you are recording and not a
>> supplier of goods and services to that business,any credit advanced to
>> the customer should be accured in the Accounts Receivable, not Accounts
>> payable.
>>
>> A transaction for a purchase by the customer will be recorded by a debit
>> to the Accounts Receivable account and a credit to the appropriate
>> Income account to record sales for the amount of the purchase.
>>
>> When the customer pays their bill Accounts Receivable is credited by the
>> amount of the payment and the Bank account is debited by the same amount.
>>
>> If you are really recording customers purchases in the Accounts Payable
>> it may explain why your accounts don't balance or match and the
>> Receivable Ageing report does not match.
>>
>>   A Receiables Aging report normally presents the totals of the amounts
>> in Accounts Receivable which have been unpaid at the specified time from
>> the date the credit was advanced to the customer(usually intervals like
>> 7days, 14 days, 30 days, 60 days, 90 days).  Depending on how you set up
>> Accounts Receivable (AR) you may be able to do this either on an
>> individual customer basis if you set up sub accounts of AR for each
>> customer, but usually it is meant to allow a business to monitor its
>> collection of outstanding credit. E.g. if you have a significant
>> proportion of your credit advanced outstanding 90 days after it was
>> incurred you are likely to be experiencing cash flow problems and most
>> of your customers are defaulting on the payments. Interpreting this
>> depends strongly on the terms and conditions of sale. If you use a net 7
>> days, you expect most of the invoices to be paid before 7 days have
>> elapsed from issue of the invoice  and the amounts owing at periods
>> greater than this to drop off fairly rapidly. If your terms are 14 days
>> then you would expect the Receivables Ageing to peak around 14 days then
>> drop off.  The longer a bill is outstanding, the higher the risk that
>> the debt will be a bad debt which will have to be written off as a loss.
>>
>> Accounts Payable is used to record amounts owing to the suppliers of
>> goods and services to the business for which you are accounting i.e
>> credit advanced to your business by its suppliers.
>>
>> A transaction involving a purchase by the business from a supplier will
>> consist of a credit of the amount of the purchase to the Accounts
>> Payable account with a matching debit to an Expense account used to
>> record purchases by  your friends business.
>>
>>   Similarly when your friend pays a bill, that payment transaction is
>> recorded by a debit to the Accounts Payable and a credit to the Bank
>> Account.
>>
>> The above description ignores complications like Sales, VAT or GST taxes.
>>
>> Cheers
>>
>> David
>>
>>
>

-- 
*Dr David R Cousens* B.Sc.(Physics), M. Prof. Acc., Ph.D. (Physics), 
Grad.Cert. Ed.