What is the impact of an A/R account on the primary checking account?

Suzanne Roberts

Client is a House Cleaner & works alone.  She's accustomed to just picking up here check when she finishes her work. Convinced client it would be helpful to create invoices , even if we don't actually give them to the client.  But now I'm stuck, having already set up a checking account for her & posted a year's worth of deposits.  Can I set up an A/R account now & what impact does it have on the checking account?  
New territory for me.  I'm accustomed to just doing my own accounts.
Thanks for any help you can provide.
 

Tom Young

I assume you are using Quicken's "business" product, a product I don't use so I can't provide the exact "mechanics" of the set up and usage.  But from a general accounting point of view setting up an Accounts Receivable Account should be pretty straightforward.

You'd set up the Account and enter any "outstanding" invoices, i.e., the work has been performed but house cleaner has not been paid.  The invoices entered should have an accounting effect of:

Debit (increase) Accounts Receivable Account              $XXX

Credit (increase) House Cleaning Revenue Category     $XXX

I believe the business product has some sort of rudimentary "accounts receivable trial balance" capability, i.e., a list of amounts owed to the house cleaner, by client.

Then when she picked up the check the accounting entry would be :

Debit (increase) Checking Account                                $YYY

Credit (decrese) Account Receivable Account               $YYY

Payments against invoices would be reflected in that accounts receivable trial balance.

So that's really the only interaction with "cash"; the payment increases cash and decreases the receivable.

I think, too, that the business product can handle this "accrual" accounting - income is earned when the work is performed - but for tax purposes convert to "cash" accounting - income is earned when client actually pays.

Tom Young

I assume you are using Quicken's "business" product, a product I don't use so I can't provide the exact "mechanics" of the set up and usage.  But from a general accounting point of view setting up an Accounts Receivable Account should be pretty straightforward.

You'd set up the Account and enter any "outstanding" invoices, i.e., the work has been performed but house cleaner has not been paid.  The invoices entered should have an accounting effect of:

Debit (increase) Accounts Receivable Account              $XXX

Credit (increase) House Cleaning Revenue Category     $XXX

I believe the business product has some sort of rudimentary "accounts receivable trial balance" capability, i.e., a list of amounts owed to the house cleaner, by client.

Then when she picked up the check the accounting entry would be :

Debit (increase) Checking Account                                $YYY

Credit (decrese) Account Receivable Account               $YYY

Payments against invoices would be reflected in that accounts receivable trial balance.

So that's really the only interaction with "cash"; the payment increases cash and decreases the receivable.

I think, too, that the business product can handle this "accrual" accounting - income is earned when the work is performed - but for tax purposes convert to "cash" accounting - income is earned when client actually pays.

Suzanne Roberts

Thank you Tom.  I'm just using Quicken Home & Business.  But what you say makes sense.  Not being an accountant, there's a lot I don't know or have forgotten about A/R.  Appreciate your answering my question