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Fin Mgr
Level 1

Labor Expense Double Count

We use Quickbooks Premier Contractor Desktop.  We create estimates and compare estimates to actuals for fixed price construction contracts.  We have a laborer who we typically use as a clean-up person around job sites.  We would like to bill our customers a few dollars more than we pay this person to cover administrative costs.  We manage customer funds in a separate checking account (as an asset of our company).  We write a check to pay for the laborer from the separate account and deposit it into our general checking account.  The laborer is paid from the general account.  Currently, we either generate double expenses (one when we write the check from the separate account and one when we write the check from the general account) or generate additional income (we invoice against the estimate we create, but when we book the laborer as billable expenses and create an invoice it generates income).  If we paid the laborer directly from the separate account it would eliminate these issues, but then we do not cover the administrative expense and it would create havoc in our payroll.  Thanks in advance.

Solved
Best answer January 22, 2019

Best Answers
qbteachmt
Level 15

Labor Expense Double Count

"We would like to bill our customers a few dollars more than we pay this person to cover administrative costs."

 

You set up a two sided Service item. Set the Rate here. Set the Cost here, too. This is used for Estimates and for Job reporting. It also jump starts the data entry on the Purchase transaction and acts as the Default Price, when you mark that the purchase you incur is billable to the customer, using the Add Time & Costs function in invoice or sales receipts.

 

"We manage customer funds in a separate checking account (as an asset of our company)."

 

Well, not really. If you are a cash basis entity and not permitted to hold Liability, their funds paid to you are Yours, when paid to you. If you are required to hold trust funds as Liability, that means the prepayment to you is Liability; separately, that is either deposited to a Trust Bank (held by, but not Owned by, you) or that is Your Bank. bank = Asset. Yours or not depends on the Trust Requirements. income or liability depends on your Accounting requirements.

 

And you are never sending the same literal Serial Number dollar from the customer to the vendor.

 

"We write a check to pay for the laborer from the separate account and deposit it into our general checking account."

 

What you just described is Trust Accounting. Once you are ready to relieve the liability, you write a check from Trust Bank to the Firm, listing only the Liability item(s) on the Items tab, job tracking = per customer name whose Liability value needs to go down. This is how a Law firm works, or a Landlord.

 

Not typical to Construction.

 

"The laborer is paid from the general account."

 

You skipped a step. First, you show why you are entitled to take money from the customer's trust and liability = you Charge them = Invoice. That is the billable time and costs step. Now you treat the trust check as if that arrived in the mail or from the Trust Department = Receive Payment for each customer name allocated on the trust check as if these are separate payments.

 

Now you have their Funds to operating bank. Now you can Pay providers of goods and services.

 

And a Law firm would not do it like this, either, because a Law Firm never had that labor as Cost and they have what is called Advanced Costs as Other Current Asset. So does a Property Management firm, as in, they Cover the costs for plumbing repair on your property that they manage for you. They Invoice for that, which clears their Advanced Costs; they also charge you their Fee, which is income. They apply the Trust payment here, because that is from the Rent Trust Liability and Bank where they track Rent Received as Trust owed to you, one of their Owners.

 

"Currently, we either generate double expenses (one when we write the check from the separate account"

 

Well, obviously, this is Wrong. Moving your own funds from bank to bank is neither income or expense data entries. It's a Transfer, really. And you didn't Pay for that expense from this Bank;' you told us this fact. At most, you reduced Trust liability. At best, nothing you are doing is Trust at all, so that is something to ask your own CPA.

 

"we invoice against the estimate we create"

 

Then everything you might Job Track marked Not billable, and if this is Advanced Costs, you need to use Not Income items on the Estimate, but WIP/Other Current Asset accounting.

 

"but when we book the laborer as billable expenses and create an invoice it generates income."

 

Only you and your accountant can help you know if what you have is:

Income/Expense operations. Example: you remodel customer's kitchens, add onto garages, etc.

 

Or,

 

Work in Progress = You Flip Properties for yourself and build Spec Homes

 

Or,

 

Trust accounting, which by definition includes Liability.

 

"If we paid the laborer directly from the separate account it would eliminate these issues, but then we do not cover the administrative expense and it would create havoc in our payroll.  Thanks in advance.'

 

You have an odd mix of Concepts for how to do your accounting, and what isn't clearly noted is that you Understand what is actually required for the accounting. If you want to set up QB to do what you need, you have to Understand what you need.

 

Examples:

 

A Town gets a Construction Loan, so that is Deposited into a Bank account used only for Construction. As that is spent, they spend from the Construction Bank. That never impacts their Liability or Debt at all.

 

If you and I contract to remodel my kitchen, my payments to you are Income; not Trust and not Liability. You can put that money anywhere you want to. You pay the subs as expense from any source of funds you want to. There is no "this bank has customer money." All of it is already Yours. Moving bank funds is Transfer. There is no Other Asset; Bank is Asset, already. There is no Liability. You have regular Income and Expense activities. This is not a condition of Work in Progress.

 

Or, You Flip property, so all Invested costs got into WIP = other current asset. You do that using Single-Sided Items linked to WIP, because on the estimate for comparison reporting, on the Purchase transactions and POs, you want to track and see and use Quantity, for Windows, Flooring, hours of Electrician labor and Hours of Painting, and Cans of Paint and Yards of Gravel, etc. Then, when the property Sells, you close WIP to COGS. In the process of the work, there is Never Expense at all. It is Invested cost = other current asset.

 

I don't know if that helps, other than, meet with your own CPA to clarify all of the data flow requirements to match your Accounting needs. Right now, it's very intermingled in concept.

View solution in original post

1 Comment
qbteachmt
Level 15

Labor Expense Double Count

"We would like to bill our customers a few dollars more than we pay this person to cover administrative costs."

 

You set up a two sided Service item. Set the Rate here. Set the Cost here, too. This is used for Estimates and for Job reporting. It also jump starts the data entry on the Purchase transaction and acts as the Default Price, when you mark that the purchase you incur is billable to the customer, using the Add Time & Costs function in invoice or sales receipts.

 

"We manage customer funds in a separate checking account (as an asset of our company)."

 

Well, not really. If you are a cash basis entity and not permitted to hold Liability, their funds paid to you are Yours, when paid to you. If you are required to hold trust funds as Liability, that means the prepayment to you is Liability; separately, that is either deposited to a Trust Bank (held by, but not Owned by, you) or that is Your Bank. bank = Asset. Yours or not depends on the Trust Requirements. income or liability depends on your Accounting requirements.

 

And you are never sending the same literal Serial Number dollar from the customer to the vendor.

 

"We write a check to pay for the laborer from the separate account and deposit it into our general checking account."

 

What you just described is Trust Accounting. Once you are ready to relieve the liability, you write a check from Trust Bank to the Firm, listing only the Liability item(s) on the Items tab, job tracking = per customer name whose Liability value needs to go down. This is how a Law firm works, or a Landlord.

 

Not typical to Construction.

 

"The laborer is paid from the general account."

 

You skipped a step. First, you show why you are entitled to take money from the customer's trust and liability = you Charge them = Invoice. That is the billable time and costs step. Now you treat the trust check as if that arrived in the mail or from the Trust Department = Receive Payment for each customer name allocated on the trust check as if these are separate payments.

 

Now you have their Funds to operating bank. Now you can Pay providers of goods and services.

 

And a Law firm would not do it like this, either, because a Law Firm never had that labor as Cost and they have what is called Advanced Costs as Other Current Asset. So does a Property Management firm, as in, they Cover the costs for plumbing repair on your property that they manage for you. They Invoice for that, which clears their Advanced Costs; they also charge you their Fee, which is income. They apply the Trust payment here, because that is from the Rent Trust Liability and Bank where they track Rent Received as Trust owed to you, one of their Owners.

 

"Currently, we either generate double expenses (one when we write the check from the separate account"

 

Well, obviously, this is Wrong. Moving your own funds from bank to bank is neither income or expense data entries. It's a Transfer, really. And you didn't Pay for that expense from this Bank;' you told us this fact. At most, you reduced Trust liability. At best, nothing you are doing is Trust at all, so that is something to ask your own CPA.

 

"we invoice against the estimate we create"

 

Then everything you might Job Track marked Not billable, and if this is Advanced Costs, you need to use Not Income items on the Estimate, but WIP/Other Current Asset accounting.

 

"but when we book the laborer as billable expenses and create an invoice it generates income."

 

Only you and your accountant can help you know if what you have is:

Income/Expense operations. Example: you remodel customer's kitchens, add onto garages, etc.

 

Or,

 

Work in Progress = You Flip Properties for yourself and build Spec Homes

 

Or,

 

Trust accounting, which by definition includes Liability.

 

"If we paid the laborer directly from the separate account it would eliminate these issues, but then we do not cover the administrative expense and it would create havoc in our payroll.  Thanks in advance.'

 

You have an odd mix of Concepts for how to do your accounting, and what isn't clearly noted is that you Understand what is actually required for the accounting. If you want to set up QB to do what you need, you have to Understand what you need.

 

Examples:

 

A Town gets a Construction Loan, so that is Deposited into a Bank account used only for Construction. As that is spent, they spend from the Construction Bank. That never impacts their Liability or Debt at all.

 

If you and I contract to remodel my kitchen, my payments to you are Income; not Trust and not Liability. You can put that money anywhere you want to. You pay the subs as expense from any source of funds you want to. There is no "this bank has customer money." All of it is already Yours. Moving bank funds is Transfer. There is no Other Asset; Bank is Asset, already. There is no Liability. You have regular Income and Expense activities. This is not a condition of Work in Progress.

 

Or, You Flip property, so all Invested costs got into WIP = other current asset. You do that using Single-Sided Items linked to WIP, because on the estimate for comparison reporting, on the Purchase transactions and POs, you want to track and see and use Quantity, for Windows, Flooring, hours of Electrician labor and Hours of Painting, and Cans of Paint and Yards of Gravel, etc. Then, when the property Sells, you close WIP to COGS. In the process of the work, there is Never Expense at all. It is Invested cost = other current asset.

 

I don't know if that helps, other than, meet with your own CPA to clarify all of the data flow requirements to match your Accounting needs. Right now, it's very intermingled in concept.

View solution in original post

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