How to use Unearned Revenues?

LemonBanjoandSupply

I'm looking for a way to document my unearned revenues. My customers pay me 50% for their project up front so I can buy materials. How do I need to document this in my transactions? When they pay me, I go to their invoice and do the "Record Payment Manually" thing. What do I need to do after that to get the money put in my unearned revenues, and then use the funds in my unearned revenues to buy materials?

Mikeg

@LemonBanjoandSupply,
It would require manual entries. I would suggest a different approach. When using invoicing the services on the invoice can only be tied to an income account. Unearned Revenue is considered a liability. This is because you have a liability to someone to perform something. Every time you invoice, whether it be for a deposit or an actual sale the amount is recorded on the income statement (a credit). Since you want it to be unearned revenue, an adjustment would need to be made by debiting sales and credit unearned revenue. On the materials side, you would have a short term asset called Prepaid Supplies/Materials. Any amounts expended from your bank account would be categorized to that account. Once a project is complete, entries would be needed to move amounts from the balance sheet to the income statement.
That is a lot of work for no real value. How I would do.
First, the concept of unearned revenue is for accrual basis accounting. Most businesses, I'm guessing yours is too, are cash basis accounting. I would suggest handling your books in the way you are going to report to the IRS. Therefore, all cash that you receive are considered sales (whether or not you finish or receive final payment) and all cash paid for materials are an expense.
Hope that makes sense to you.
BTW, fellow picker and proud owner of a Gibson RB3 Wreath

LemonBanjoandSupply

@Mikeg

I'm in an accounting class in college right now, and I'm trying to make sure everything is done "right" (whatever that means).

I'm not exactly sure what's going on in Wave, because everything that I've been taught in my class isn't what I'm seeing in Wave, and it's all so confusing.

Awesome about the RB-3! What year is it?

Mikeg

@LemonBanjoandSupply,
Yes, accounting can be confusing. Stick with cash received recorded as sales or owner contribution and cash disbursed as expenses or owners drawing. Keep it simple. You will need to report that way for tax.
The Gibson is actually one of the first ones, no serial number. It has a piece of tape labeled J-7. I got it from Tony Trischka. I used to take lessons from him many moons ago. I believe he got directly from Gibson or something like that.

PS You'll get it and it will all make sense.