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Invoicing

Simon Michael edited this page Jan 10, 2022 · 6 revisions

Businesses send invoices to clients to request payment. You may want to track, eg:

  • how much is due to be invoiced
  • how much has been invoiced but not yet paid
  • how much has been invoiced and paid.

How to record invoices and payments varies depending on whether the business uses the Accrual or Cash accounting method.

With accrual accounting

Revenue is recorded (and taxed) in the period when the corresponding goods/services are provided - not at the time of payment, which usually happens after some delay. The expected payment is tracked as a receivable, which is a type of asset.

An easy time to record revenue is when the invoice (request for payment) is sent:

2020-02-01 * (202001ab) AB Inc. | invoice for work done in january
    revenues:consulting:ab     $-1000
    assets:receivable:ab        $1000

2020-02-15 * AB Inc. | receive full payment for 202001ab
    assets:receivable:ab       $-1000 ;= $0  ; optional: when paid in full, assert that
    assets:checking             $1000

With cash accounting

Revenue is recorded when money is actually received. It's not obvious where to record an invoice:

2020-02-15 * AB Inc. | receive full payment
    revenues:consulting:ab     $-1000
    assets:checking             $1000

You can do it as follows, while still keeping the accounting equation balanced:

2020-02-01 * (202001ab) AB Inc. | invoice for work done in january
    assets:receivable:ab        $1000
    equity:receivable          $-1000

2020-02-15 * AB Inc. | receive full payment for 202001ab
    equity:receivable           $1000
    assets:receivable:ab       $-1000 ;= $0
    revenues:consulting:ab     $-1000
    assets:checking             $1000

With estimated tax

If you're a freelancer in the US, eg, you may be responsible for paying estimated income taxes. Here's the above transaction, with additional postings to track and save for tax owed:

2020-02-15 * AB Inc. | receive full payment for 202001ab and save estimated tax
    equity:receivable           $1000
    assets:receivable:ab       $-1000 ;= $0
    revenues:consulting:ab     $-1000
    equity:payable:us:2020       $150  ; estimate new tax owed, eg 15% 
    liabilities:tax:us:2020     $-150
    assets:checking:tax:us:2020  $150  ; save that amount (in a virtual subaccount)
    assets:checking              $850

See also

Examples tested on 2022-01-09 with: