Humor me and you just might find that this combination of Items and Job Costing Reports works for you and in any industry that has a lot of billable purchases that require a ‘Disbursement’ management system.
This term is considered when court fees, transfer taxes, probate fees, fines and penalties are involved. (Check with your provincial law society for a comprehensive list). These are exempt from GST.
Not as Agent
This term is considered when billing for services and goods disbursed on behalf of the client, which will be recovered when the client is invoiced, usually on settlement or at the point of interim billing, which I call the appropriate billing moment. These include medical reports, couriers, land surveyors, bank charges, accountant fees, etc. Basically everything purchased for a client that is not purchased As Agent.
Not as Agent purchases will generate an ITC refund at the time of purchase and a GST payable at the time of billing to the client.
- First, set up a Current Asset account and call it *WIP (Work in Progress). By putting a star in front of the word, it moves it alphabetically upwards on the list, if your client is not using numerical coding for their accounts.
- Lawyers call this their WIP. They buy goods and services and then inventory them until they bill them out to the client. Sometimes the WIP for a client might go on for years, if it’s a long term claim where they will only settle when the lawsuit is settled.
- Then set up two sub accounts under *WIP. The first is called Disbursements, the second is called Reimbursements. Since you have to make a journal entry at year end to record revenue from reimbursements and expenses for disbursements, this gives you a way to calculate the total to post to the income statement.
- You have to make a year end entry to record the revenue and expenses. The balance in the *WIP account is not revenue or expenses until realized under the Matching Principal.
- Second, set up a Service Item for Legal Fees and set up Other Charges Items for reimbursed expenses for copies, faxes and any other in-house charges allocated based on usage of supplies and equipment in-house. These might be charged out at a marked up price.
- Third, set up Non Inventory Part Items for anything you purchase from a third party under two headings, As Agent and Not As Agent. (see above) Make sure that each of these items are set up on both sides of the Item, the purchase side, as well as, the sale side. You can record transactions for reimbursed expenses where the reimbursement is immediate and there is no reason to include it in WIP. I would be inclined to run everything through the WIP, just so it’s all in one place, but you don’t have to.
- Fourth, set up sub-categories for the items that the lawyer bills As Agent and Not As Agent separately because different taxes may be attached to the As Agent and Not as Agent categories.
- This just helps keep it straight when you do the billing to the client. As Agent you don’t have to charge GST/HST or PST to the client. But, you will have to check with your client or the law society in your province to determine which items are purchased and billed to the client As Agent and which are Not As Agent.
Record purchases using the Item tab on the Bill and code the purchases to the As Agent and Not As Agent sub-categories with appropriate tax coding. Make sure you put a good description in the description column so that when you prepare the invoice, it’s not a guessing game as to what you are charging for. Oh, yes, you have to put in the customer’s name in order to perform Time/Billing when you invoice for the reimbursement of expenses.
Take photocopies of the purchases and file them in the client’s file ready to attach to the invoice when you prepare it. File the originals in the alphabetical purchases file so you can find them again. Believe me, you want the originals if you are ever audited. Give your client the copies no matter how much they insist they should have originals. You have to retain the original in order to claim the GST. The client can claim the GST if they are a registrant, from your invoice to them. Your invoice to them is the only original invoice they should ever receive. Customers don’t need the originals of what you purchased, you do when you are audited.
Note: GST auditors will reverse your claim for an ITC if you do not have the original invoice in your file and imagine trying to chase down all of these clients when you are audited. Have fun!
Now, open up a new invoice and using Time/Costs button, choose the items you wish to charge to the customer. Yes, you can struggle with the concept of charging GST on the PST, but get over it, life is just too short. Print the invoice, attach the copies of the purchases from the client’s file and fire it out in the mail.
Reporting is dead easy.
Run a Job Profitability Summary and filter it for your new *WIP (Current Asset) account. Display the columns by total and voila, there is a listing of your customers along with their unbilled amounts, their billed amounts and the difference yet to be billed. Drill down for a detail report by customer.
Report in more detail for all customers to balance to your account in the General Ledger using the Transaction Detail by Account (under Reports/Accountant and Taxes) Totaled by Customer and filtered for the WIP account.
As long as your purchases and payables records are current, you will always have your WIP ready to invoice the eager client who just happens to ask… Can I settle my account, exactly how much do I owe?