I have a S-corp consulting business and my tax advisor wants me to use cost-basis accounting. I'd like to have some way for my books to show hours worked but not yet invoiced. He suggested that I use a "Liabilities/Deferred Revenue"
account:
As work is done:
Thanks
account:
As work is done:
debit: Assets/Invoices, credit:Liabilities/Deferred Revenue
When I send out an invoice:debit: Assets/Receivables, credit:Assets/Invoices
When the check arrives:debit: Liabilities/Deferred, credit:Revenues
debit: Assets/Checks, credit:Assets/Receivables
When the check clears:debit: Assets/Checks, credit:Assets/Receivables
debit: Assets/Cash, credit: Assets/Checks
Everything cancels out so the net effect is:debit: Assets/Cash, credit: Revenues
I understand the idea of using "Liabilities/Deferred Revenue" for labor paid but not performed. But in my case, I have labor performed but not paid. At the end of the last accounting year, I had a lot of un-invoiced hours on the books. This had the effect of making my debit ratio look bad. Somehow that seems wrong. All those hours represent client liabilities rather than my liabilities. Would make more sense to use a contra-account "Assets/Deferred Revenues"? How should this be done and what is the appropriate name for this kind of account?
Thanks