Unpaid invoices showing as revenue
Iris85
Member Posts: 6
When I create an invoice, it is showing up in revenue on the income statement even though it has not been paid. Is this correct? It's therefore not reflecting the accurate amount of income I have received by the end of our first quarter, for instance, because it is showing what was invoiced for and not what was actually paid.
Thanks in advance for any advice.
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Oh yeah! @Iris85, that took me a while to wrap my head around. It's just how wave does accounting.
The short version is that there's two different ways to do accounting: Cash (income is created at payment) and Accrual (income is created at invoicing). Wave uses accrual accounting. They're both valid, but from what I understand, accountants like accrual better.
If you have questions on this, I'm happy to try and lend a hand.
Thanks @Lyla Vuono I am familiar with both methods of accounting, I guess I just didn't realize that the unpaid invoices as revenue was part of accrual based accounting! So doesn't that misrepresent income at tax time though? I do bookkeeping for a sole proprietor and her accountant prepares her taxes. All the accountant ever asks for is an income statement from me (she never wants to see a balance sheet - although I have one of course!). Therefore she sees the revenue but doesn't see accounts receivable when entering our books. Wouldn't that give her an incorrect impression of how much revenue we actually had?
@Iris85 It doesn't misrepresent your taxes, in the long-term. The idea is that the second you invoice a client, that money is yours, even if it isn't in your pocket. You end up paying taxes on money that isn't technically in your possession yet, but it's still yours, and you'll get it eventually.
In the end, it just means you end up paying the same amount of taxes long-term, you just end up paying it differently. It'd be worth talking to the accountant to make sure everything is in order, but you should be safe. Your income statement also follows accrual rules, so unpaid invoices will show up there (under Sales, if it hasn't been changed).
Thanks @Lyla Vuono that is very helpful!