Client advance expenses

tedf1 · ‎July 29, 2020

Hello!

In my business, I bill for my time, and I also advance some out-of-pocket expenses for my clients. I send the clients a single invoice for the sum of the cost of my time and for reimbursement of advanced expenses. Currently, my workflow looks like this:

1. I receive the bill from a third-party vendor and I debit an expense account and credit accounts payable.

2. I pay the bill by debiting accounts payable and crediting my operating account.

3. I issue an invoice for both my time and the advanced expense, debiting accounts receivable and crediting part to my "professional fees" income account, and part to my "reimbursed expenses" income account.

4. I receive the payment, debiting my operating account and crediting accounts receivable.

The IRS wants the advanced expenses to be treated as a loan to my clients that show up as a note payable on my balance sheet rather than as expenses on my P&L; and it wants client payments for the advanced expenses to show up as repayments of the loan rather than income. My question is: how can I enter these transactions in Quickbooks Online?

Thank you!

john-pero · ‎July 29, 2020

Let's start with, the IRS is full of it. Your clients are not treating these like loans since they are oblivious to the costs until you invoice them. And if it shows up on their invoice as a loan not only will they be utterly confused they will not be able to deduct the expenses.

You are incurring billable expenses. Mark them as billable in the Bill. Use Pay Bills to pay the bills. Invoice the clients and select time/costs to add.

And from your detailed description of the behind the scenes operations of QB are you not using the Bill, Pay Bill features?

When you enter the bill received AND invoice the two-sided items (that post to both expense or income based on how used) you have posted both expense and income on an accrual basis, as well as both AP and AR which get resolved when you pay and your clients pay. Income offsets expense. AR posts as an asset, AP as liability. What is AR other than money you have "loaned" your customers whether it is for 1 day or 100.????

Your workflow should be

1. Receive invoice from vendor and enter Bill and mark portion or all as billable to client

2. Use Pay Bills to create check or record of digital payment

3. Create client invoice, select time/costs from the popup - If you use timesheets your hours will be listed as well as the costs, which you can markup as well

4. When you receive payment Receive Payment, deposit check

2 and 3 order is interchangeable and immaterial which happens first

Read this thread https://quickbooks.intuit.com/learn-support/en-us/reports-and-accounting/how-to-record-client-reimbu... that has insightful info as I have described above.

BTW, you need Essentials or above to utilize the billable expense feature and do have to turn the feature "on" in your company settings If you are only on Simple Start teh jump up a notch will be well worth it

View solution in original post

john-pero · ‎July 29, 2020

Let's start with, the IRS is full of it. Your clients are not treating these like loans since they are oblivious to the costs until you invoice them. And if it shows up on their invoice as a loan not only will they be utterly confused they will not be able to deduct the expenses.

You are incurring billable expenses. Mark them as billable in the Bill. Use Pay Bills to pay the bills. Invoice the clients and select time/costs to add.

And from your detailed description of the behind the scenes operations of QB are you not using the Bill, Pay Bill features?

When you enter the bill received AND invoice the two-sided items (that post to both expense or income based on how used) you have posted both expense and income on an accrual basis, as well as both AP and AR which get resolved when you pay and your clients pay. Income offsets expense. AR posts as an asset, AP as liability. What is AR other than money you have "loaned" your customers whether it is for 1 day or 100.????

Your workflow should be

1. Receive invoice from vendor and enter Bill and mark portion or all as billable to client

2. Use Pay Bills to create check or record of digital payment

3. Create client invoice, select time/costs from the popup - If you use timesheets your hours will be listed as well as the costs, which you can markup as well

4. When you receive payment Receive Payment, deposit check

2 and 3 order is interchangeable and immaterial which happens first

Read this thread https://quickbooks.intuit.com/learn-support/en-us/reports-and-accounting/how-to-record-client-reimbu... that has insightful info as I have described above.

BTW, you need Essentials or above to utilize the billable expense feature and do have to turn the feature "on" in your company settings If you are only on Simple Start teh jump up a notch will be well worth it

FF82 · ‎April 16, 2021

I am also in the same boat with one of my clients who has a law firm. They have Advanced Client Costs, like Filing Fees, which they pay on behalf of their clients, but they don't bill them separately for reimbursement. They just have a retainer agreement with a flat rate, which already includes any Advanced Client Costs, like Filing Fees or Postage and Delivery Expense. I could create a bill and mark it as billable but I have no way of tracking which one of their clients they paid those Filing Fees for. If I keep categorizing these Filing Fees under Advanced Client Costs, which is an asset account, how will they be offset? When their client pays the law firm, they just send them a check or Zelle them the retainer fee, which goes straight into the Legal Fees income account.

Leo72 · ‎January 04, 2022

I cannot seem to get an answer on this.

Were you able to get a workflow for client advances on your balance sheet and it work correctly? if you could share it would be appreciated.

Thank you

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