3 Common Invoicing Pitfalls Contractors Run Into with QuickBooks
In the video above, I go over three common invoicing pitfalls, or situations, in QuickBooks where construction companies can potentially run into problems with invoicing:
1. Billing for Unincurred Charges
2. Credited Expenses on a Bank Statement
3. Deleting Billable Items from an Invoice
Billing Clients for Charges That Were Not Actually Incurred
If you are familiar with QuickBooks for construction job accounting, you know that when we enter a bill, we input the following information: the vendor; amount; account; cost code; and customer, and it shows up as billable. This is something that we have already paid for by check, and it’s a pass through so it shows up as billable to the client.
But what if we want to bill a client for something that we’re not paying for? An example of this might be a piece of equipment that we own and that’s on the client’s land, an excavator, for example. We have purchased this piece of equipment, but we’re not currently getting charged for it because we already own it, but we do want to bill the client for the use of it. There’s obviously not going to be a bill or check, so how do we set up the billing in QuickBooks? What we have to do is create a new customer and we can call this customer, “Equipment Use.”
Let’s say that we want to bill the client $300 for the use of this piece of equipment. We already own the it, so we can’t bill it out with a bill. Instead we create a check, or we can create a journal entry of some sort, where we put in the correct cost code and amount and bill it so that it shows up as billable.
But since we’re not paying for the excavator, we don’t want the bank reconciliation to get messed up when bill the client for it. To avoid that, we need to keep the amount received by “Equipment Use” at zero so that it doesn’t affect the cash balance. To keep everything reconciled, we need to have a negative amount for the same amount that we’re billing out in order to zero everything out. We use the same cost code and other info and put it under “Equipment Use.” Obviously we’re not going to send out an invoice to “Equipment Use” so it’s not going to affect any invoices and this way when we select an invoice for this particular job, this amount will show up but not mess up the bank reconciliation. As an added bonus, you can go back to your Profit and Loss by job and take a look to see how much you’ve earned from the use of your equipment.
You can do the same sort of thing with payroll. I know there are construction software programs that can cost it out to different jobs, but with QuickBooks desktop, you have to do a work around.
On a general ledger, you always want to show payroll wages and payroll taxes that match up to your 941s your W2s and so forth. We can’t put the payroll directly toward specific jobs because if you expense a certain job, that means you’re not expensing the payroll account. So you want to first select the payroll account and put it through that, and then create another job called “Payroll Job Cost” and then follow more or less the same steps as we did for billing unincurred charges.
For example, let’s say you paid John Doe $1,000 with $250 in payroll taxes. You want to bill out that $1250, but you want your general ledger to show payroll wages of $1,000 and payroll taxes of $250. So you first put those amounts directly in payroll costs, and then create a check, or a journal entry, and label it whatever prefer as the cost code, “General Labor” for example, and then put that amount in that job and do a negative one for payroll job costs. It’s a very similar procedure to billing for unincurred charges.
Credited Expenses on a Bank Statement
Another thing I’d like to go over concerns credited expenses on a bank statement. For example, if you purchased something but then got a refund because you realized you didn’t need it–or whatever might be the case–you’re going to see a positive amount under the deposits that’s not income or equity, it’s just a negative expense. What a lot of people do in this situation is go to Make Deposits and record it as received from whoever and put it in whatever account. If you do it that way, it will show up correctly on the general ledger as a negative expense in Direct Costs, but it won’t show up on the sub-ledgers, the job cost ledgers. You want to be able to see all of the returns and refunds for particular jobs in the Job Estimate vs. Actual reports, but if you merely record them as dummy payments in Make Deposits, they won’t show up on those reports.
In order to fix it, you delete the deposit and instead go to a credit card charge, or check, and put in zero. Under the correct Item code, enter the amount–it’s a negative credit card charge which means it’s a deposit. You put in the deposits that are refunds as negative credit card charges because a regular credit card charge would of course debit the account rather than crediting it.
If it was coming out of the bank account, you would just go to Bank Account and you would put in a positive amount, but don’t put it under that customer, just put it under “overhead.” That way the credit card reconciliation doesn’t get messed up. It zeroes out because your Bank Account increases by the amount of the refund while your expense decreases by the same amount. When it is saved, you will be able to see the refund in the individual Job Estimate vs. Actual report.
The reason this problem crops up is that QuickBooks uses items as cost codes, not expenses. When you’re doing the deposit, it doesn’t allow you to choose an item, just an expense. That’s why it doesn’t show up on the Job Estimate vs. Actual report and why you have to do as described above in order to reconcile the bank account, not mess up the credit card and correctly show the refund in the job cost reports.
Deleting Billable Items from Invoice
The last thing I want to show you is in regards to creating invoices. It’s pretty basic, but a lot of people seem to have issues with it.
When you want to invoice a client you usually add all your expenses to the invoice and maybe add on a builder’s fee as well. Sometimes though, there may be an item on the invoice that should not be billed out, or you may want to bill it out at a future date. Where you can get into trouble here is if you decide to delete an item after the invoice has already been saved once. If you have saved the invoice and then decide you want to delete an item, it will be deleted from the invoice, but because you originally saved the invoice with the item on it, it will be marked as having been billed in QuickBooks’ billing records for that customer. Therefore, you have to make sure to go back to the original transaction where it will be shown as having been billed to the customer and click on the box that shows the icon indicating, “billed” to change it to a check mark instead which indicates, “billable,” in order to keep the billing history correct.
The 3 common invoicing pitfalls above are ones that I often see people having trouble with when they are using. I hope this brief tutorial can help you avoid them.