Billing > Advance bill invoices [in-depth guide]
Guide contents: Overview | Creating an advance bill invoice | Applying an advance bill to an invoice | Regular advance bill workflow | Create a credit for an advance bill | Write-off | Sales tax & advance bill invoices | Close/VOID an unused advance bill | Things to never do when using advance bill | Cash-basis accounting & advance bills
Overview
The advance bill invoice is a method of billing that allows you to take in a "deposit" from your client and over the course of the project/campaign, recognize revenue by associating regular invoices. This allows you to recognize the income and expenses for the project within the same GL period.
When clients are set up as part of a parent-child company relationship, an advance bill invoice for a child or the parent can be used to pay any other child's invoice.
NOTE: For electronic billing worksheets, only advance bills associated directly with the worksheets' project will be available within the worksheet. However, once the invoice is created, you will be able to associate any of the clients' advance bill invoices to the new invoice. New to platinum: From the electronic billing worksheet, you can toggle between advance bill invoices related to the project & related to the client.
This topic describes what happens when you create & use an advance bill invoice. It also describes how to credit or close an AB invoice.
The advance bill invoice is different than a regular invoice, in that there are 2 separate parts to the invoice: 1) AR part, and 2) Accrual part.
The AR part acts like a regular invoice, i.e. it will show on your AR aging report, however, instead of crediting a revenue account, it will post to your designated deferred income accrual account.
The Accrual part acts more like a credit memo, in that you are applying your regular invoices against the "deposit". In this case, your regular invoices will not post with a debit to AR, but instead a debit to your designated deferred revenue account.
Creating an advance bill invoice
There are several ways to create an advance bill invoice, such as from the Project budget/billing screen, from the Campaign screen, or by manually creating the invoice.
The following steps will show you how to create an advance bill invoice manually. This way, you can see all the parts that connect.
1. Go to Workamajig > Billing > Today billing> click + >Project advance bill
2. Search for/select appropriate project
3. Enter the percentage of 'estimate to bill' or 'total to bill'.
4. Click Create invoice
5. The invoice will then be displayed. Edit line subject & description as needed and Submit for approval
The submitted invoice needs to be approved & posted in order to affect the general ledger.
The client's receipt is entered & applied to the advance bill. You can then use the advance bill to pay for standard invoices for the client's projects.
Applying an advance bill to an invoice
To apply an advance bill, you will need to create a regular invoice. At the bottom left, there is a section that displays the 'unapplied advance billing amount'.
1. Click on the blue 0.00 to connect the advance bill.
2. Select the appropriate advance invoice. When selected it will apply the full available amount. You can click into the Applied amount field to adjust if needed.
3. Click Apply advances button. This will close the Add advance billings screen and display the list of advance bill invoices that have been applied. Click the X to close or use the ESC key
Note the change in the Less applied advance billings field.
5. Submit/approve/post invoice
Regular advance bill workflow & T-charts
Ex. 1 - You want to ask for a 50% deposit from your client for a $1000 job, so you create an advance bill for $500.
When posted, you will see the following:
| Account | Debit | Credit |
| Accounts receivable | 500 | |
| Adv bill accrual | 500 |
The client pays you immediately the total amount. When posted, you will see the following:
| Account | Debit | Credit |
| Cash | 500 | |
| Accounts receivable | 500 |
At this point, the AR part of the advance bill has been closed, however, there is still $500 remaining in AB accrual.
The next month, you perform $250 worth of work. You create a regular invoice and apply the advance bill invoice.
When posted, you will see the following:
| Account | Debit | Credit |
| Adv bill accrual | 250 | |
| Item gross revenue | 250 |
The following month, you perform the remaining $250 worth of work. You create a regular invoice and apply the advance bill invoice.
When posted, you will see the following:
| Account | Debit | Credit |
| Adv bill accrual | 250 | |
| Item gross revenue | 250 |
At this point, the accrual part of the advance bill invoice has been used. So the invoice is considered closed.
| Account | Debit | Credit |
| Accounts receivable | 500 | |
| Adv bill accrual | 500 | |
| Cash | 500 | |
| Accounts receivable | 500 | |
| Adv bill accrual | 250 | |
| Item gross revenue | 250 | |
| Adv bill accrual | 250 | |
| Item gross revenue | 250 |
So in period 1, you have a debit to cash and credit to Adv bill accrual
In period 2: you have a debit to Adv bill accrual and credit to gross income/sales
Overall: you have a debit to cash = $500 and credit to gross income/sales = $500
Create a credit for an advance bill & T-charts
Ex. 2 - You ask for a 100% deposit on a $1000 job. However, they only pay $500 of the deposit and refuse to pay more.
This means you will need to write off the AR part & credit the accrual part to close the invoice.
You first create the deposit invoice.
When posted you see the following:
| Account | Debit | Credit |
| Accounts receivable | 1000 | |
| Adv bill accrual | 1000 |
The client pays $500 immediately. When posted, you see the following:
| Account | Debit | Credit |
| Cash | 500 | |
| Accounts receivable | 500 |
You perform $500 worth of work and invoice the client. When posted, you see the following:
| Account | Debit | Credit |
| Adv bill accrual | 500 | |
| Item gross revenue | 500 |
The client then stops work and the project is considered complete. Because the advance bill was for $1000, you need to open the advance bill invoice and click the Credit tab, located on the top right of the screen. This will cause 2 invoices to be created: one invoice will clear the accrual amount, and the other will clear the AR amount for the same amount as the accrued amount.
When you approve and post both of these invoices, you will see the following
| Account | Debit | Credit |
| AR relief | ||
| Account receivable | -500 | |
| Item gross revenue | -500 | |
| Accrual relief | ||
| Adv bill accrual | 500 | |
| Item gross revenue | 500 |
NOTE: This same method will be used if you mistakenly created an advance billing invoice and the client decided to not use it. Since you have already accounted for this at your month-end, this will allow you to document this change in a later period. If it was not used in the same period, you could simply delete the invoice.
Write-off
If the client had not paid anything, the above step would only have taken care of $500 in AR. You would need to perform the additional step of opening the advance bill invoice and clicking the Write-off tab located at the top right side of the screen. This would have the effect of posting the remaining $500 into your designated bad debt account.
Sales tax & advance bill invoices
Because an advance billing invoice is considered an invoice in the system, you are able to set tax rates and select if the line will track sales tax. However, whether you should use this feature or not will depend on the tax regulation in your area. If selected, the tax amount will be tracked to the period set by the advance bill invoice posting date. This is why it is important that you make a decision as to how best to account for sales tax when using an advance bill invoice.
Should sales tax be tracked using the Sales tax 1/2 feature on my advance billing invoice?
There are 2 methods to deal with sales tax in regard to an advance bill. The method used is dependent on the tax regulations set forth by your local tax authority
-
Sales tax is due only when the "sale" is recognized in the GL: This method is typical for most areas of the US. Please confirm with your local tax authority.
Since the tax will be recognized at the time you apply the regular invoice, you should NOT check the Sales tax 1/2 box on the advance billing invoice line. Instead, you will add an additional line to the advance bill invoice prior to the approval/posting of the invoice. This additional line will have the Line name "sales tax" and a description that defines what it is for. You will need to manually calculate the value of this line using the appropriate sales tax percentage.
Why? With this method, you are asking for the entire invoice plus tax amount but will be tracking this amount into your Adv bill accrual account, so the entire amount can be used for both taxable & non-taxable invoices. When applied to a regular invoice, the regular invoice settings for taxes will be used to track the applicable taxes, based upon the posting date of the regular invoice, for sales & sales tax due during that period. Any unused advance bill amount can be easily refunded to the client and no changes will be needed to your sales tax reports to your tax authority. - Sales tax is due at the time an invoice is generated: This method is typical of many areas outside the US. When Sales tax 1/2 functions are implemented on an advance bill invoice, the tax amount will immediately be shown in the Sales tax report based upon the advance bill invoice posting date and would, therefore, be due to the tax authority. NOTE: The sales tax amount collected on an advance bill invoice can only be used for sales tax. It can not be used to pay for the pretax or no-tax line amount. The sales tax collected & paid on the advance bill invoice will appear on the sales tax analysis report. Any tax on the revenue invoices applied by the advance bill with sales tax will not appear on the sales tax analysis report since it was already reported on the original advance bill invoice.
For full details of each scenario, please review: Tax via advance bill [in-depth guide]
How to close/VOID an advance bill that will never be used
- Create a new regular client invoice that matches the setup of the advance bill (same client, amount, project, etc).
- Add a line on the new invoice for the amount of the advance. Populate the GL account to a sales account (remember the account used).
- Apply this new invoice to the advance bill. This will reduce the 'unapplied amount' to $0. Post the invoice.
- Open the advance bill. Make sure it's posted. Then click on Write-off.
- A new invoice will appear with the line going to your bad debt account. The open amount of the advance is now reduced to $0.
- Change the GL account to match the account used on the new invoice from step 2. Post the invoice.
- You are now done. Ensure all three invoices are posted for these to reflect on your financial reports.
Things to never do when using advance bill
1) Never use transactions on an advance bill: because an advance bill is considered a deposit, there would never be any actual transactions associated with the AB invoice.
2) Never apply a credit memo towards the accrual side of the advance bill: a credit memo is considered a credit to AR, it should be associated with the invoice via the Payment section. The accrual side can only be relieved via a positive $ amount invoice applied via the Invoice section of the AB invoice.
Cash-basis accounting & advance bills
Cash-basis accounting will post a bit differently than the accrual basis. As you know, the transactions are not recognized until a receipt is posted against an invoice. This is also true for the AR side of the advance bill invoice.
Ex. In the following, we will create a $2000 advance bill
1) Advance bill invoice is created. The cash-basis posting detail is blank because the invoice has not been paid.
2) The receipt is received, the receipt cash-basis posting detail will show the following:
| Debit | Credit | |
| Bank | 2000 | |
| Advance bill accrual account | 2000 |
Note: The receipt posts to the advance bill accrual account and not to the AR account or sales account
3) A revenue invoice is created and applied to the advance bill, the cash-basis posting detail will show the following:
| Debit | Credit | |
| Advance bill accrual account | 2000 | |
| Sales account | 2000 |
Note: The posting date of the invoice will determine the date you will see the transactions in the cash-basis GL.
WARNING: Until a receipt is posted to the advance bill invoice there will be no cash-basis posting details on the regular invoice.