Friday, July 1, 2011

Creating your Own Accounting System - Invoices

Welcome back to our series in developing your own accounting system.  If you remember, last week we discussed Accounts Payable

Today I will be covering the Customer Invoices tab.  Thank you IRS for requiring us to maintain receipts for all sales that we make.  For my payments through paypal this is all tracked, but I occasionally get a cash order and therefore don't necessarily have paypal invoice from it.  This is one way of me tracking all of my sales for tax purposes. 

So what do I track in my Customer Invoices tab?  You can see from the image below that I track quite a few things. 
Most of it should be relatively self explanatory, such as date, description, customer , etc.  but there are a few columns I would like to discuss.  First being Income Account.  This column will tell me where the money I collected will go.  For me it will most likely go to Sales and Sales Tax Collected depending on what state the person I sold to lives in.  This will give you what is called a split transaction.  A transaction where the money goes into multiple accounts.
Also of interest is the grouping of quantity through total paid.  This grouping of columns are the key to calculating the amount that is owed to you.  The quantity is the number of the same item a person bought from you.  For instance, if you make soaps and they bought 4 different bars of a particular type of soap your quantity would be 4.  The unit price, is pulled from your inventory list, to be discussed next week, and is the cost of one product, i.e. in our example one bar of soap.  The discount column is to signify if you had a sale or some type of promotion going on where the person may have purchased the item for less than the posted price.

As I inferred earlier, not all sales will be taxable.  You need to know your states requirements for collecting sales tax, if any.  There are several states actually trying to crack down on this.  This article from My Money Blog discusses California's current fight with regarding this issue.  Therefore in my next column I track whether the sale was taxable and at what rate.  For me in Virginia it is 5% of all sales.  I then subtract any discount out and add in the applicable tax which gives me the total paid value.

Next I need to figure out how much is actually staying in my accounts, i.e. how much money is Etsy, Paypal, Square, or some other processing agent taking from me.  I then subtract out those values from the amount paid and viola I have the amount of money that is actually going into my bank account.  WAHOO!  I typically carry over the fees from my inventory tab which is where I do most of those calculations.

We'll discuss that next week.  Until then...Happy Independence Day!

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