Income not registering in proper year.......

ashort

Hi,

I have a small business where I keep track of income, expenses and invoices using Quicken Classic Deluxe (7.5.2) for Mac.

I use a receivables account to keep track of invoices I'm owed for work I have done…then when I'm paid for that work (usually anywhere from a few days to 60 days) I enter a new transaction in the receivables a/c to "Transfer" that money to my actual checking account register in Quicken.

This all works well as I can see how much I'm owed from jobs in the Receivables and then easily transfer it to the checking a/c. BUT today I realised that one transaction I had entered as a receivable in December 15th 2022, and was paid in Jan 12th of 2023 is not registering as income in 2023 when I run an income report for 2023…..

Does anyone know why this would happen? It's very odd as it does show up as income in 2022 even though it is only income I'm "owed" and I haven't been paid for it yet..?
Appreciate any help on this!
Thanks,

Alan.

jacobs

@ashort The question is whether you count your income when it is invoiced (accrual basis accounting) or when you are paid (cash basis)? Most larger businesses use accrual basis, but many small personal businesses may use cash basis. Since you are tracking your receivables, you could easily do it either way. (You just have to choose one and stick with it.) It sounds like you're doing the latter?

If you count the income when it is invoiced, then the transaction in your receivables account would use a category for the business income. When you get paid, you enter the deposit the in your checking account as a Transfer to the receivables account (e.g. increasing cash, reducing receivables).

If you count the income when you get paid, then the deposit in your checking account would use the category for the business income. It cannot also be a transfer to the receivables account. So let me ask: how do you enter the transaction in your receivables account when you invoice the work? That is, what is the transaction you're entering which increases your receivables account? It can't use an income category, because you haven't yet "earned" the income until it is paid. This can be tricky to do in Quicken because you're wanting to create a transaction to increase the balance in your receivables account without categorizing it as income or transferring it from somewhere. I can offer a suggestion on this, but I'd like to understand hw you've been doing this before I go down a path that might confuse things.

ashort

@jacobs Thanks so much for your reply!

You raise great questions (I hadn't really thought through before…!). I am using "Cash" basis accounting, as I would record my income when I receive payment rather than when I invoice the jobs.

So you have correctly identified what I'm doing wrong as I realize that I have a receivables account set up where I record the invoices owed as "Gross Income" in the deposit field. Then when I receive that money, I also record it in my checking account as "Gross Income". To do this I make a separate transaction on the date I'm paid in the receivables register and make that a payment (by transfer) to my checking a/c…… So this way my "Receivables" register records first (for example) owed +$500 by Client A. Then when I get paid I record another transaction where I transfer -$500 from Client A to my checking a/c where it shows up as +$500.

Maybe this is a crazy way to do it, but I want to keep track of money I'm owed and this was the only way I could figure it out. I'd love to hear a better way if you can recommend something?

Thanks again,

Alan.

Jon

What if you made your "Receivables" account a Separate account? Then when you receive a payment & record the transfer from Receivables to Checking the transfer would show up as income (I think).

jacobs

Thanks for explaining the way you've been doing it. There is no perfect way to do this in Quicken, since accounts receivable is not part of accounting for a business using cash basis accounting. But I think it's a perfectly fine idea to use Quicken for tracking your receivables rather than some external spreadsheet or database. So you basically need to enter receivables without them affecting your income, and the only way to do that is two separate transactions. There are a few ways you could do this, but I think I'd do it using the special Adjustment category. Adjustment is a category which is neither income nor expense, and doesn't move money to another account; it just makes money appear from or disappear into thin air. So when you invoice a client for services, you'd enter a positive transaction in your Accounts Receivable account with Category=Adjustment. The balance of your receivables account goes up, but no income is created. When you get paid, you'd enter two transactions: (1) in your checking account, a deposit with your business income category, and (2) in your receivables account, a negative transaction again using Category=Adjustment. (To be technically correct accounting-wise, you might want to make your Accounts Receivable account a Separate account so it's not included in your net worth.)

(You may already do this, but if you use Tags for the name of each client on the receivables transactions, you can then do a report by Tags which makes a reasonable receivables report.)

@Jon said: What if you made your "Receivables" account a Separate account? Then when you receive a payment & record the transfer from Receivables to Checking the transfer would show up as income (I think).

Nope. It would still show up as a transfer, not income.

ashort

@jacobs thanks, that's definitely a better way, using the "adjustment" category as a sort of "neutral" way of keeping track. Thanks so much for your help, much appreciated!