Hi there,

I have been trying to figure out how to setup and keep my books in QB lately and decided to share with you what I came up with and how I track things. It looks like it is the way as it should be done, at least it works for me so far. Correct me if I missed something. I use QB 2007 for Mac, so everything here is explained based on that version. Step by step instructions where posted from QB 2006 User Guide with my comments along the way.

First of all I decided to switch to cash basis for accounting. I think, it is the best method for photographers to keep track of everything. The reason is that you may be booked 6-12 months before the wedding or before the final payment is received. If you have it set up as accrual, then as soon as are booked and entered an invoice for the wedding you have recorded a sale and you own all of those applicable income taxes for the whole amount. You didn’t receive the money yet but QB will show you that you earned that income already.

Cash basis vs. accrual basis for taxes
Tax forms may ask you to indicate which of two methods of bookkeeping you are using:
• Cash basis
• Accrual basis

Cash basis
Many small businesses track income at the time they receive the money, and expenses
when they pay the bills. This method is known as bookkeeping on a cash basis. If you’ve
been recording deposits of your customers’ payments but have not been including the
money customers owe you as part of your income, you’ve been using cash basis. Similarly,
if you’ve been tracking expenses at the time you pay them, rather than at the time you first
receive the bills, you’ve been using cash basis.
If you do bookkeeping manually, cash basis is simpler. However, when you use
QuickBooks, it is equally easy to use either method, and accrual basis has some added
benefits.

Accrual basis
In bookkeeping on an accrual basis, you record income at the time of the sale, not at the
time you receive the payment. Similarly, you enter expenses when you receive the bill, not
when you pay it.
Accountants usually recommend accrual basis because it gives you a better picture of how
your business is doing.

The choice is yours
QuickBooks makes bookkeeping really simple by enabling you to enter transactions the
same way no matter which method you use for taxes. You can create reports that follow
either method, so you are not restricted to one method.
QuickBooks comes set up to create your reports on an accrual basis. That is, it shows
income on a profit and loss statement for invoices as soon as you record them, even if you
haven’t yet received payment. It shows expenses as soon as you record bills, even if they
are unpaid.
If you prefer to see reports on a cash basis, just change the preference in the Reporting
Preferences window. For cash-basis sales tax reports, use the Sales Tax Preferences window,
instead. You can also customize the settings for individual reports by clicking Customize button.

Retainers
The trickiest part was to set it up to keep track of retainers/deposits. When you receive income in advance of performing a service (a retainer), this money creates a liability because you owe the service to the customer.
On a day of booking I create an invoice for a customer as it is described below and send it along with their copy of contract as proof of payment. Those retainers show up as income and you have to pay taxes on them. They are not taxable items. I collect sales tax on final invoice.

To use retainers in QuickBooks, you need to set up the following:
• An Other Current Liability account for tracking retainers. Retainers are liabilities
because in return for them, you owe clients a certain amount of work.
- Name this account “Retainers,” and type unearned retainers in the description field.
- Set up the account with a zero opening balance unless you want to track retainers
existing as of your start date.
• An item of the Other Charge type to use for showing the retainer on invoices.
- Name this item “Retainer,” and type retainer applied in the Description field.
- In the Account field, enter the name of your account for tracking retainers.
• An item of the Payment type to use for showing the original payment received.
- Name this item “Payment,” and type Payment by check received in the Description
field.
- Choose Check in the Payment Method field. If you accept advance payments by other
methods, set up separate items for each method.

To track receipt of the retainer:
1 Write an invoice for the customer, choosing the retainer item in the Item field.
Although you need to have this invoice in QuickBooks, you don’t have to send it to the
customer.
2 Edit the description so that it says “Retainer account established.”
3 In the Rate field, enter the retainer amount as a positive number.
This amount increases the balance of your liability account that tracks retainers.
4 On the next line, choose the payment item in the Item field.
5 In the Rate field, enter the payment amount as a positive number.
QuickBooks automatically makes a payment negative. This line item balances the
previous line item and makes the invoice balance zero.

Also I create a final invoice for the whole amount and apply a retainer as a charge item. It deducts the retainer/deposit amount and it calculates the sales tax for the whole amount. The invoice date is set for the future. I set it up about 6 weeks before the wedding. I want to send it out 4 weeks before the due date which is 2 weeks before the wedding. I set my terms in invoice entry screen to Net 30. Which means sets the due date of 30 days from the invoice date. It helps me to keep track of expecting payments by due date. It shows up in Account Receivable and some reports. At the same time I create a reminder on the invoice date in iCal to remind me to email/mail the final invoice to a client. I prefer iCal since it will remind me when I turn on a computer instead of QB's one, which reminds me only if I start QB up.

To apply the retainer to services:
1 On an invoice for the customer, enter one or more line items for services.
Usually, you’ll write a new invoice. However, you could add the first service to the
invoice that shows receipt of the retainer. You could even add all subsequent services
to the same invoice.
2 Subtotal if you have more than one line item.
3 On the next blank line, choose the retainer item in the Item field.
4 In the Rate field, enter the amount of the retainer you are applying as a negative number.
This amount decreases the balance of your liability account that tracks retainers. If you
apply an amount equal to the charges on the invoice, the balance on the invoice is zero.
To see the current retainer balance for each client, you can create a custom report.

To create a report of retainer balance by customer:
1 Choose Reports > Custom Summary Report.
2 Customize the report as follows:
• In the Customize Report window, select the earliest dates for customers that still
have retainer balances in the Report Dates field. Select Customer in the Row axis
field.
• (Optional) In the Advanced Options window, select Non-zero in the Display Rows
area.
• In the Filter Transactions window, select your account for tracking retainers in the
Account field.
• In the Format Header/Footer window, enter a new report title that describes the
report in the Report Title field (for example, Retainer Balance by Client).
See “Using the Customize button” on page 256 and “Filtering report data” on page 259
for details.
3 Memorize this report so you can recall it later.
4 Click OK.

When I receive a payment, I apply it to unpaid invoice (Customer->Receive Payment) and QB records it as income at that time. So later, if I decide to run some report to see how much income I have to report to Deportment of Revenue, the final payment is going to show up at the time I received it. For example, if you have been booked in first quarter and received a payment in second quarter, you won’t see it on the income report for the first quarter.

I hope this would help to clarify a few things for people who just start using QB to track everything.

The next post is going to be about how to set up accounts to track of your equpment/assets.

Phew! I think I might be getting the hang of it (took me a while to read though, LOL). Thanks, Alex!

Printing! Hanging on the AN-TOE-KNEE-NO wall! (6 pages)

Retainers might be hard to undestand and to do at first. But as soon as you understand how to set it, you will see how they magicly work. And I might need to post a few screen shots to illustrate how an invoice for a retainer should look like. When you create a retainer invoice its total should be 0 and containe 2 items:
1. Retainer account established with positive amount of deposit.
2. Payment (Payment by check) with negative amount.
They will compensate each other and the total will be 0. It will drop the money on Retainers account as a result.

Then you have to deposit the money to your banking checking account. You have to do it in QB as a transaction and drive to your bank to deposit a check. In case of retainers you have to:

1 Choose Banking > Make Deposits.
2 Select the customer payment checks you want to deposit and click OK.
3 Select the checking account you want to deposit into.
4 To record getting cash back, in the blank line after the last item, enter the following:
• In the Amount column, enter the amount of cash you got back with a minus (-) sign
in front.
• In the Account column, enter your petty cash account or the expense account related
to how you spent the money.
• In the other columns, enter any necessary information.
5 (Optional) Press x P to print a deposit summary.
6 Click OK.


When you create final invoice, the 'Retainer applied' charge item should be negative. It will deduct money from the total amount owed by client on invoice and from Retainers account.

When you get a final check from a client you have to choose Customers > Receive Payments and pick a custoemer job and outstanding invoice to apply a payment to and THEN you have to do Deposite a payment.


Let me know if you have questions.

Thank You!

Or, you can use the online quickbooks and just use the "deposit" field that is on every invoice.

Good idea Alex!

Keep' em coming.

Thanks. We owe you one....

Huy

BOOKMARKING this one!

Note to Matt: I wish there was a "mark as fave" box or option or something so I wouldn't be building all these crazy OSP bookmarks. It'd be nice if it was somehow built into my profile box or something like that.

Cuz I love OSP. I owe everything I've done in the last 8 months to this place.

THANK YOU SO MUCH FOR THIS!!!! I just bought Quickbooks (I can hear the gasps) and this will be crucial! Uh... bookmarked... snap, snap, snap.

Bookmarking... Hmm. If you're on a mac (or a PC with the full version of acrobat installed), just print the page as a PDF so you always have it handy. The web is notoriously unstable...

An alternate way to do what is described so beautifully above is to just have your taxable items as a separate invoice. When I was doing the bookkeeping on my Mac, my shooting fees and the deposit on the album are all non-taxable. So, there's no sales tax to be paid. I just have "deposit" as a line item that is easy to enter in an invoice. The deposit is paid, all is well. I have the $2000 credit to their album listed as "album design" fee, so it's not taxable. Then, when I generate the invoice for their album, I just apply a $2000 discount.

That way, my reminders always showed who hadn't paid everything before the wedding date, etc. Very easy to track. No custom reports to run.

Now that I'm using QB Online, it has a "deposit" field near the payment info on the invoice that makes things easier.

Even better: use Pictage's P3 system to bill for everything, then you don't have to charge or collect sales tax on anything! Love that.

I coudn't edit my post to add some screen shots so, I will post it here.


Retainer applied item setup:




Retainer payment received item setup:




Retainer account established:




Here is how your retainer invoice suppose to look like:




Here is client's invoice with a retainer applied:

Alex,

It seems strange to be tracking their money on something that isn't really their bill. You're doing that just to avoid sales tax payments on things you haven't sold yet?

This is how retainers suppose to be handled. On my first post I posted some parts from User's Guide and that was the way they suggested to do it. You can mark each item as taxable or not. I set up retainers as non taxable items. You are right, it is not their bill, and you don't have to show it to customer if you don't want to. But to enter and track it in QB, you have to create an invoice.
On the final invoice my wedding package item is taxable (see 'T' next to amount?). It doesn't show the tax on the screen, because the customer is out of state and I didn't collect tax for them. But if the customer is taxable, then the tax will be calculated on the wedding package amount minus retainer after that. So, it will be correct at the end and you collect the right amount of taxes on final invoice.

I am an OSP member that surfs a lot, but doesn't post much. I am pretty good with this stuff, and I read some, and thought.. it can be even easier than all that.

First, TALK TO YOUR STATE DOR and A CPA. This sales tax collection stuff might not be true for you so check! In MA I have to collect sales tax on just my product.. but because I can charge 1.00 for my product (say an album) and 4K on my service..I collect sales tax on the entire package because it's easier.

Also I date my invoices the DATE of the wedding.
But I also collect money and tell the goverment I collect in 2007 for 2008 weddings.. That's a BIG sticking point you have to be aware of before you decide how you are dating your invoices.

Why do I date my invoices the date of the wedding?

First because it would be hard to double book a day if I already have an invoice (I'd see it as I scrolled by_ ) 2nd because i don't have to collect sales tax on the wedding until the day of. Why pay it early when don't have all the money. Theres a trick though. If you take a retainer for 2008 in 2007, what year are you telling the government it was collected as income?? This is something you have to decide! If you don't decide.. you're going to confuse yourself. If you Tell them you are collected money in 2007 for 2008 dates..and you Date your invoices the date of the wedding you can't just run a profit loss for the year at the end of the year.IF... IF you're collecting money in one year for another.. and you are telling the government about it You NEED to run a special filter to take out any money you collected in 07 for 08. If you don't, you'll be over reporting your income in 2007 and under reporting in 2008 A lot of people don't think about that. Its just a big mess to untangle later when you get audited. "Did I take money in 2007 for 2008, and report it, or just 2007 income for 2007, and track my money in 2007 for 2008 .. and ... see Confusing.

Retainers are the hardest things for photographers and QBs because it's not designed for us. It's designed for people who take money the day it's due. No pre payment. No "waiting to be paid" In this aspect QBs is flawed and they know. It's not meant for us. We can make it work though

With that said... I am a cash basis biz.

You can accomplish the same thing in Qbs about 3 different ways. So you'll pretty much get a different answer... depending on who you're talking to. I've seen some pretty complicated methods for the invoices. IF you have more than one invoice per client, you really are taking to much time book keeping! I've found.. you only need on.

QBs is simply trying to sort your income and expenses for you. That's it.
it wants to know "where" to put your incomes into and "where" to take your expenses from.

Think of items list as a bunch of buckets.
Think of your chart of accounts as another bunch of buckets.

When you buy an album ... what album company do you use? Albums Unlimited? Picto? That would be an ITEM.

What bucket do you want to have money associated (as an expense) with that item?
I have it as a main category called sale
Under Sales I have - album
I have another bucket album page (when I sell additional pages)
I have sale- print 4x6
sale - print 5x7
etc
I can Pull up just sales and say "how much did I make in SALES (knowing it includes albums and album pages) Or I can click on just the album, or album page report on my items list.

Here are my screen shots of my items list. How detailed you make it, depends on how much you want to break down what you sell and what you make. I can click on "Thank you Cards" and pull an up to date report of how much I 've brought in selling Thank you Cards. So I know next year. is it worth offering? I WANT to know this. Do you? Do you want to know how many 4x6 s you sell? Or just prints? If you want to know how many 4x6s you sell.. create a item called Prints... then 4x6 . If just prints. Create an item called Prints.
Here is my screen shot.


This is my Chart Of Accounts List -(partial list.) this is for after I make my list of items, what account I associate money linked with them, so I can pull a report on just "Prints" and know that all the 5x7s and 4x6s made me xxx amount of money. But like I said, I can go into my items list and click on 5x7 and find out too.



Here is a check I wrote out. Notice the Expense in blue ... that number will always match the total I am writing the check for once I type in that list below. That list below the check is a perfect example of how Chart of Accounts are being used. I had prints


I've been using QBs for 3 years. I've got it down so at the end of the year, I run my special report for taxes that I set up, click one button and hit "print" and I am done.

Just always check with your state and CPA. Just think in terms of buckets. Money in.. MOney out. It looks a lot harder than it is. Really. I also have a phone .. if you're desperate.
Hope this was helpful. I am not a writer, so forgive my typing and writting skills. It's also 1 AM.
Alicia

QB has it all in User's Manual about Retainers and in another PDF document called QB for your industry. It tells about photography business and how to handle different things.

When I was talking about retainers, I collect retainer in 2007 for 2008 and i report it as income in 2007 because it is income for 2007 and QB shows it as income. You are right you have to date your invoice at the day of the wedding or close. Then you record your income by that date. I collect sales tax on final invoice (in 2008). I don't want to take $500 deposit for $4000 package and pay most of it as sales tax for the amount I will receive next year.
You can read a lot in how to run QB in User's Manual. But the problem is the only good user's manual is from QB 2006. In QB 2007 they simplified it to the point that it is useless. So get QB 2006 User's Guide and start reading it. It has all the details how to handle things.

This is awesome Alex! Thanks for all the details! I'm eager to put this information into practice!