KENT RICHARDSON KNOWS YOUR BUSINESS. He can answer your accounting and business management questions. As a bookkeeper for small businesses since 1980, he's seen it all. And as a senior member of the C&P Helpdesk, Kent's heard it all, too. There's no bookkeeping question he hasn't answered -- and he's ready to help you. So go ahead, ask Kent.

Q: How does C&P handle unapplied credits? I have a client who overpayed in one month and will be credited in a different month.

A: When a client overpays an invoice, it creates a negative (credit) balance on that invoice as you have noticed. As future invoices are billed to this client, you'll apply the credit invoice against the positive invoice when entering the client payment for the net difference. For example, if the client had a credit $2,000 invoice and a positive $10,000 invoice, the client will send you a payment for $8,000. In the client payment distribution window you'll apply a positive $10,000 against the positive invoice and a negative $2,000 to the credit invoice. This nets out the total of the distribution window to match the $8,000 payment from the client and clears both invoices.

Q: We have a Freelancer who offices with us. Basically, his first eight hours of work is his rent every month. What is the best what to handle this from an accounting perspective. We don't have a good system to use and it causes a bookkeeping issue right now.

A: What you have is an exchange of good and services situation (bartering) to pay for sub-leasing your office space. Not unlike if your agency did some design work for a printer's marketing campaign in exchange for some printing goods and services from this printer on your other jobs. Goods and services, not money, are changing hands.

But, you should account for this properly, per your question. I recommend the following. Enter the freelancer's time against jobs as you always do, with the standard net and gross cost per hour. I assume you don't enter the freelancer's costs as a job cost A/P invoice with a gross amount, rather as an overhead A/P invoice with only a net amount. This will ensure the jobs' profitability is materially accurate and this time is billed accordingly. This billing will flow through to your general ledger as normal with a credit to your job revenue accounts. The 8 hours of billed "free" time is technically your sub-leasing payment from the freelancer.

If you want your books to be completely accurate to reflect sub-leasing revenue, then once a month or once a year, determine the total billing amount for the freelancer's "free" time, and make a journal entry to move it out of job revenue, and into a miscellaneous income account for sub-leasing revenue. Just debit the job revenue account and credit the miscellaneous income account when making this journal entry. But, you can see this doesn't change the overall profit in the general ledger, rather just reclassifies your sources of revenue.

On a side note, technically, the cost rate per hour on the "free" time is the cost of your lease payment for the square footage they are sub-leasing divided by eight hours (vs. what the freelancer normally charges you on an hourly basis), but I anticipate the normal hourly cost for the freelancer is close enough so that the difference is not material to the job's profit. As well, this only impacts the job's profitability, your general ledger will be fine, since it deals with the "real" costs, which are the lease payment itself (which covers the square footage the freelancer is leasing), and the real revenue when billing the "free" time.

Q: I need to refund a client. I saw how to creat a credit invoice but I need to actually send them a check. What's the best way to account for this on the job ticket?

A: It appears you want the job ticket to reflect a reduction in billings amounts based on this refund to the client. The only way to do this is to add a credit (negative) A/R invoice as you mentioned in your question. Debit A/R and credit your billing accounts normally on this invoice.

The next steps you'll need to pay close attention to the G/L accounts used. First, pay the credit invoice so that it comes off your aging. Do this by adding a negative client payment. But, instead of debiting cash as you would with a normal client payment, you'll debit the suspense account (999998). Credit the A/R account as normal.

Last, issue the check to the client by adding an overhead check. With overhead checks you can type in the payee manually (vs. using a vendor code, like is done for vendor payment checks). Make sure you debit the suspense account on this check and credit cash as normal.

Notice that the positive debit to suspense on this check and the negative debit to suspense on the client payment offset each other to ensure the general ledger is properly impacted.


Q: How do I get my boss (who owns the agency) to keep track of her time? She's the worst in the office!

A: When the boss does not set a good example for the rest of her staff to follow, you can always take her lead. When everyones' time is not accounted for properly, she should begin to see the loss of revenue. When enough revenue is lost thereby effecting the bottom line of the company's finances, she should then start to realize the importance of entering and keeping track of her time.

Q: I need to find a new accountant. What should I look for in a new CPA?

A: A good accountant is not an easy find. First question the need for an accountant or CPA. Keep in mind a CPA may have a higher billing rate so assess your needs. What do you want from an accountant? Set these goals on paper first for yourself, then for the accountant.

Q: Now that we use Clients & Profits for our accounting, we're not working with our accountant as much. What role should the CPA play now that we're doing so much of the day-to-day work ourselves?

A: Any accounting system is as good as the data that is input into it. Have the accountant perform a monthly review of the data entry. Ask that the accounts such as accounts receivable and accounts payable are reconciled to the agings. Have the accountant confirm the accuracy of the bank reconciliation. A good review is another set of eyes!

Q: We're starting to add enough new employees to justify an outside payroll service. Are they worth the cost? What should we expect from service?

A: Calculating payroll is always a challenge. Your business is challenging enough without adding the extra burden of payroll. A reputable payroll service charges a nominal fee for peace of mind. The payroll service prepares all the paychecks for the employees and keeps track of all deductions and taxes that are collected and due. You should expect they keep you updated of all that is happening while they handle the work for you.