[GNC] Invoice system and Deffered Income

[Vincent Dawans]

Hi Sergey:

I think you are describing the ability to use cash accounting instead of
accrual accounting. Gnucash does not offer this by default unfortunately.
There is an old enhancement report about it
https://bugs.gnucash.org/show_bug.cgi?id=95700 and even an old wiki page
https://wiki.gnucash.org/wiki/Cash_Based_Accounting

There is actually a not-so-bad workaround but it still requires some manual
adjustments. So it's a workaround, not an ideal solution.

It is very similar to what you have done so far as per your description,
with the additional advice of putting all of your transitional accounts
under a single top-level account. If you want to accommodate both invoices
and bills you would have:
Pending invoices and bills (TOP LEVEL of type asset or liability)
-- Pending bills (type: liability)
---- Bills Payable (type: a/payable) This is the account where bills will
be posted by gnucash -- it will be selected by default because it is of
type a/payable
---- Deferred Expenses (type: asset)  This is the account you need to use
inside bills in lieu of expense account. Ideally it should include sub
accounts matching your expense accounts needed in bills, although not
entirely necessary.
-- Pending invoices (type: asset)
---- Invoices Receivable (type: a/receivable) This is the account where
invoices will be posted by gnucash -- it will be selected by default
because it is of type a/receivable
---- Deferred Income (type: liability). This is the account you need to use
inside invoices in lieu of income accounts. Ideally it should include sub
accounts matching your income accounts needed in invoices, although not
entirely necessary.

You can just do the Pending invoices part if you don't use the bills
feature of course.

The reasons why this structure is useful:
- the low level accounts in that hierarchy under Pending bills and Pending
invoices should always balance each other. If they do, you will see zeros
under Pending bills and Pending invoices in the account view. If you don't
see zeros, it means your manual adjustments are wrong OR your mistakenly
used income/expense accounts (instead of deferred income/deferred expenses)
in your invoices or bills. Without that check it will be hard to detect
errors.
- by not using actual income/expense accounts they will be excluded from
the P&L by default.

The BIG caveat:
- After you process each payment, you need to enter adjustments between the
Deferred Expenses and expense accounts (for bills) and Deferred Income and
income accounts (for invoices);  Ideally you put the adjustments as
additional splits in the same transaction processing the payment so there
is an easy track record of it and no risk of getting the date wrong. If you
have complex invoices with a lot of items going to different
income/expenses accounts this is far from ideal of course as you have to
adjust each account. You could also just use one "deferred income" account
and one "deferred expense" account and distribute expenses and income to
the correct expense/income account in the adjustment. In that case you need
the info from somewhere else (the item description in the invoice, etc).
Hence why this is a workaround. This is the part requiring the most manual
work and the main part that would need to be automated for this feature to
be fully implemented. How much work depends on how complex your
invoices/bills are.

Little caveats:
- You need to exclude these accounts from the balance sheet, although the
balance sheet is still balancing with them, it just shows an additional
asset balanced by an additional liability of opposite value. Not what you
want but still not unbalanced. Still best to exclude them in the report
options. It's easy because they are all under one single main account.
- You need to include these accounts in some reports such as Customer
summary for instance. Easy enough to do in report options as well.

Now the above workaround is the heavy-duty one when you want your books to
be in cash-basis at all times. Personally, because I don't use the vendor
bill option and do have that many invoices and only need precise reporting
once a year, I just edit my unpaid invoices and push them to January 1st
when I reach the end of the fiscal year. Not pretty but it does the job for
me. But I could see that not working if you have a lot of invoices or need
cash-basis reporting more often.

There could also be a way to deal with this purely with reports. It would
keep the registers in accrual mode as they are, not do any pending accounts
and adjustments there, but then provide a cash-basis P&L and cash-basis
Balance sheet reports that would do the adjustment. That would be the
simplest way to provide at least some functionality without any manual
entries. But the challenge would come from partial payments. If an invoice
has several income accounts in it, and a partial payment is made, there is
no way (for the computer) to tell which income account the partial payment
should be applied to without additional info from the user. One could
decide to either pay the invoice items in the order presented or distribute
proportionally or any other way. Partial payment is an edge case but still
has to be accounted for. The same would need to happen for bills as well of
course. At the end this would still not be ideal since your main registers
would still follow accrual so the info wouldn't match the report. For
instance when closing books, profit/loss would be calculated as accrual in
the register, you would only see the cash-basis in the report.

The  alternative is to automate the workaround above and enable it on a per
book basis. It's actually sort of similar to the type of per book selection
and automation done by the trading accounts (for a completely different
purpose). But it's a substantial amount of work to do it properly.

Sorry if my explanations are confusing. It's hard to explain this sort of
thing without visuals. I might try to update the wiki page with some of
these ideas and some screenshots. Also it's possible there might be some
other caveats I have not run into of course as each use case can be
different.

Sincerely,

Vincent Dawans

On Mon, May 29, 2023 at 2:46 PM Sergey Mende <sergey at mende.spb.ru> wrote:

> Hi there,
> I am trying to figure out if the existing customer invoice system is
> suitable for my needs.
> For simplicity, let's say I have the following accounts:
>
> Current (Bank)
> Undetermined Income (Income, for bank account transactions just imported
> from the online banking)
> Deferred Income (Income, used at invoice creation to track invoices that
> are posted and sent to the customers but not paid yet)
> Income (for invoices that got paid, so the payment actually received as a
> bank transaction and processed as a payment of an invoice)
> Receivable (A/Receivable, for tracking invoices)
>
> The problem is that I don't like to see non-paid invoice splits in the
> Income Register until the invoice payment arrives to my bank account,
> imported and processed as invoice payment.
>
> The idea is to assign an incoming imported transaction as a payment for an
> invoice from the Bank account Register and change the Income account
> appropriately, so the paid invoice appears in the Income Register
>
> As I got from the docs, this mailing list and my experiments,
> there is no way to change the Income account after the Invoice has been
> posted and specifically at the payment processing step.
>
> Am I missing something?
>
> Thank you,
> Sergey
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