The purpose of this help file is to explain the concepts of income,  invoices, and payments within the context of small businesses accounting using an online accounting software.

Clarity Accounting Enter Income View

This is the enter income view users will see as soon as they sign in and enter the “Dashboard” area.

It is split into 4 sections using horizontal tabs:

Enter Income
Enter Invoice
Enter Payment
Detailed

Enter Income

This section is mainly for users who collect income on commission or receiving regular income cheques without having to invoice clients to be paid.  A classic example would be a real estate agent who just need to enter an commission income cheque / deposit.  Use this section to enter an income if you have already been paid.

Payment Account

If an income does not have a payment term (due date) attached to it, it is assumed that this income has been paid.  In which case, you can select an appropriate bank account where the payment has been deposited.  For instructions on how to set up accounts, please view our help file for Accounts Set Up.

Enter Invoice

This section is used for small businesses whose primary method of getting paid is through “Invoicing”.  Invoices are generally issued by businesses providing products or services to their clients.  An invoice usually consists of the following information:

• Invoice Number
• Invoice Date
• Vendor Contact Information
• Client Contact Information
• Payment Terms / Due Date
• Quantity (number of items sold / number of hours worked)
• Price / Rate (cost per item / hourly rate)
• Subtotal
• Applicable Taxes
• Balance Due
• Pre-payments (if applicable)

For general instructions on how to create PDF invoices, please refer to the help file “Create PDF Invoices”.

Accounts Receivable (AR)

One of the intricacies of small businesses accounting for tax purposes is that an income is incurred as soon as an invoice is sent regardless of whether or not a payment has been made.  If a business has an outstanding invoice of $1500 to Test Company that has never been paid during the fiscal year, then the government assumes the $1500 invoice you sent to Test Company as “taxable income”.  Don’t worry, if this seems unfair, you can actually deduct $1500 off as bad debt (expense) when it comes time to report your income to the government.

It is important to note that when a business sends out an invoice, it does not mean that the invoice has been paid.  Businesses genearlly uses the following payment terms (listing from most common to least common):

• Net 30 (due 30 days after the invoice has been issued)
• Due upon receipt (due as soon as the client receives the invoice - hoping they will pay quickly)
• Net 60 (due 60 days after the invoice has been issued)
• Net 90 (due 90 days after the invoice has been issued)

Accounts Receivable is a term generally used in accounting and it basically means outstanding invoices yet to be paid.  Whenever an invoice is created that is not marked as “paid”, you will see the outstanding balance in the Accounts Receivable section on your Clarity Accounting Dashboard.

Clarity Accounting Enter Invoice View

Enter Payment

Every invoice created with a payment term gives rise to the need to collect the payment and recording this payment into the accounting system.  For example, if an invoice of $1500 was issued to Test Company on September 4th with a Due Upon Receipt payment term, then we would hope that Test Company will pay as soon as they receive the invoice so a payment can be recorded.

Clarity Accounting Enter Payment View

For detaled instructions on how to enter invoice payments, please refer to the help file “Invoice Payments”.

Detailed View

The “Detailed” tab in the income section is simply a combination of data entry fields from the “Enter Invoice” tab and the “Enter Payment” type.  We found that many accountants and bookkeepers prefer using this view when doing their data entry but it is basically there for people who would like to the option to include a lot of detail when entering data.

Clarity Accounting Detailed View

Tags: accounts receivable, enter income, invoice software, Invoicing, online accounting software help, pay bills, Small Business Accounting Basics

This entry was posted on Friday, September 5th, 2008 at 12:39 am by may and is filed under Bookkeeping, General Instructions, Income and Invoices, Small Business Accounting Basics, Track Income. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.