End-of-Year Accounting for Daycare Service

[Maf. King]

On Thu 14 January 16 16:31:17 Terry Morse wrote:
> 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?
> 


Hi Terry,

I suggest you create an Income:UnlikelyToRecieve account, then allocate the 
"missing" income on the invoice to the new account.  You can then exclude that 
account from the P&L reports, but it will show as still owing on the invoice 
reports.

Ultimately, you would probably handle this by an Expenses:BadDebts account and 
clear the invoice into that, which would properly offset the accrued, but 
missing, income for the tax office.   If the payment ever does actually 
arrive, then all you need to do is reverse the bad debt transaction.

0.02
Maf.