Please help as I am getting totally confused… One of my companies offers clients concierge services including management services and the booking third party suppliers for various services. As far as our accounts are concerned, we raise a invoice for our services and offer the clients the option to pay the supplier directly. Our problem arises when the clients choose to pay us for the third party services as we do not raise a invoice for this amount as this is considered a disbursement. Also, this way this transaction does not go onto the P&L and is purely a Balance sheet item (ie debtor/creditor). To implement this, we have setup a bank account called Disbursements Account to handle all disbursements. So, when a client pays, his invoice is tagged as paid and balance is allocated to the clients credit account. For disbursement, we then transfer the relevant amount from the clients credit to the Disbursement Account. All seems to be great up to this point. But problem arises when we pay the third party supplier, as there is no purchase invoice we simply tag the relevant payment as a transfer to the Disbursement account. This amount should be debited in the Disbursement Account ie cancelling the earlier credit but instead the Disbursement Account is credited. The Disbursement account should be zero at this point but instead it is double. What am I doing wrong
The way you’re doing it sounds like you’d still end up with the disbursement amount counting towards your “general sales” which definitely doesn’t sound right. Rather than a disbursements bank account how about creating a new nominal for disbursements in the sales range (4000-4999). When you invoice your client you’d split the invoice into two lines, with your services as “general sales” and any disbursements as the new “disbursements” code. For the balancing transaction when you pay the supplier, you’d tag the money out on your current account as “something not on the list” and post it to the same 4000-range code.
There is an open feature request to enable posting sales invoices directly to balance sheet codes, you might like to add your vote there:
Thanks for response, it is much appreciated. I originally did it the way you suggest but then I changed it. The problem with this method is that the disbursements still go on to your P&L under Disbursements. I did not want any disbursements appearing in the P&L because they are not our sales and hence do not want anyone to say question otherwise. This is why I created a bank account to which I can debit and credit the entries to. Any positive balance at year end will appear under liabilities in the balance sheet. With this approach there are no entries in the P&L. I think this is the right way to do it but just not sure what I am doing wrong.
With my suggestion, what will show on your P&L is only money for disbursements that you have collected from your clients but have not yet paid over to the relevant suppliers. Once you have paid the supplier it won’t affect your P&L report. True, if you reach year end with disbursement money that you have received but not yet spent then it will appear under sales, and you’d have to journal it to a balance sheet code on the last day of the accounting year and then back to the sales code on the first day of the next year to make your YE accounts look right.
Alternatively you could maintain both a sales code and a bank account code for disbursements, use the sales code when you collect money from your customers and then move the balance across more frequently (e.g. journal it once a month), or if you really want to keep everything bang up to date then every time you bill a client against the disbursements sales code, create a matching money out transaction on the disbursements bank account for the same amount and tag it (using something not on the list) to the sales code to cancel out the P&L entry from the invoice.
Being able to assign sales invoice lines directly to balance sheet nominals would cut out this intermediate step.