[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]
Re: Closing an invoice even when it doesn't want to be.
- Subject: Re: Closing an invoice even when it doesn't want to be.
- From: "Chris Travers" <..hidden..>
- Date: Mon, 30 Apr 2007 12:49:26 -0700
It is a contra income account because presumably you are using it to
adjust your income figures down by the forgiven pennies. People also
use contra income accounts for early payment discounts, for example.
Look at it from a semantic clarity perspective:
If you use an expense account, you are saying, "I billed the customer
$x and he paid me $y. I am treating the difference as a cost of doing
If you use a contra-income account, you are saying "I billed the
customer $x and he paid me $y. I agree that this is legitimate and
that $y was the correct amount of income earned on this invoice."
I cannot think of any reason why one would want to use liability,
asset, or equity accounts since this does not really represent these
things. Both of the above ways will provide the same net income
account numbers, but if gross income numbers are important, you will
want to check with your CPA about the proper way of doing it.
Can you perhaps explain how the "type" of account alters how the ledger
gets handled? I think I might have used an asset or liability account
for my penny tracker, but I guess this is incorrect and means that my
income statement is not going to show it as I might expect?
You are right to consider this as problematic.
An asset represents a collectable or real financial asset. This is
neither. Contra asset accounts are generally used for allowances
against assets for risk management and risk-based adjustments. The
allowance for doubtful accounts is one such account.
Liabilities represent current financial obligations. This is not one.
I suppose one might use a contra liability account for managing
things adjustments for year-end on partially fulfilled obligations
(i.e. prepayments on a monthly service contract, half-way used up).
Either use an expense account or a contra-income account.