would you like a different way
of recording billable expenses so that quickbooks does not reduce your expenses at the moment you
bill the client well then you need to know how to record income from billable expenses
if you have any questions about this topic you can leave them in the comments section below and i'll
do my best to help you and of course if you feel the video helped you i hope you will click like
and don't forget to subscribe to get updates on new videos that come out all the time there are
two ways that billing a client for job-related expenses could affect our account balances
at the moment we bill the client placing them on an invoice may reduce the original expense
or placing the item on an invoice could instead be recorded as income
now you get to choose which way quickbooks behaves if you prefer to lower your expenses
when you bill the client for billable expenses then leave it the way it is
if you prefer instead to increase your income by the amount of billable expenses
then you can follow the procedure that i'm about to show you you see you would have to open the
preferences window which we will in a moment by clicking edit preferences then you would have to
choose the proper category of preferences time and expenses and then of course in the company
preferences tab you would have to click this box track reimbursed expenses as income and
that's very simple and we're going to do that in a moment and the behavior of your file will change
now if we don't check the box and we leave it the way we've been doing
then at the moment we pay for a billable expense of course cash is going down because we just paid
and as we learned in a prior video the expense that you paid for goes up just like you're paying
a normal expense and at the moment we bill it will behave the way it behaved in the prior video
the expense goes down because the client is responsible for the expense which means
our expenses decrease because the client is now assuming responsibility for it when we place it
on an invoice and of course if we bill the client accounts receivable goes up by the amount that we
build the client now if we do check the box which is the way that we're learning it in this video
there is no difference at the moment we actually pay the expense cash goes down and at the moment
we pay the expense our expense for our company our law firm goes up because at the moment we
pay quickbooks does not yet know that we're going to bill the client but at the moment we
bill the client instead of the expense going down the income account goes up and accounts
receivable of course goes up by the amount we're billing for the billable expense now please note
the net result on the profit and loss by client distill the same
your bottom line of your net income is not going to change if you switch methods however the totals
inside the categories of income and inside the categories of expense that are shown on
your profit and loss will be different it all depends on what works for you and your law firm
so when you prepare for this change you have to consider the way we did it previously
the prior billable expense video did not check the box and simply decrease the expense at the
moment we placed it on a client's invoice after checking the box in the preferences window
you need to know that there is one additional step for each billable expense you intend to use
you must map the billable expense to the specific income account that will show on the profit and
loss by client report so here's the trial balance before the change you can pause the video and
double check your numbers to make sure that it's the same so that you can follow step by step
but let's take a look at this april one billable repair when it was billed it lowered the repair
expense let's take a look so if we go here to the trial balance you know you open your trial balance
if you look at repair expense and double click you can see that for betty when we first wrote
the check it increased the balance of the account because it didn't know we were going to bill betty
but at the moment that we billed betty she assumed responsibility for that expense so the expense
decreased and became zero and of course if it's on an invoice it went into account receivable
and let's take well let's change the preference now and by changing just the preference let's see
if anything changes you'll see just changing the preference doesn't really affect the trial balance
watch we go edit preferences now of course we're in the category you scroll down to the category of
time and expenses click company preference and this is the check mark that you want to check
click here and leave the check mark track reimbursed expenses as income
and notice by clicking ok for this preference the numbers did not yet change
and the repair expense is still zero the repair expense was still lowered by the bill
because it was a prior transaction however let's also take a quick look at betty's
column in the profit and loss if we go to the profit and loss by client you can see
that repair expense is zero and we have no income for betty for repair expense okay now
at the moment april 1 was a billable repair but at the moment we map our billable expenses
then you will see the change we're going to map repair expense to a new account that we're going
to create called income from build repairs and what will happen when we change this
what will happen at the moment we map this income account to this change well
what will happen is that repair expense will come back because quickbooks now knows that it
should not take the money out of the expense quickbooks now knows that this income account
is where to put the money at the moment you bill the client for a billable expense and these will
be the two numbers that will change at the moment that we map the repair expense to its
its corresponding income account we do this list chart of accounts we go down to repair expense
and then we click account new oh excuse me account edit sorry account edit now we're editing this
and notice after we click the preference this little box appears at the bottom of every edit
account window that is in a category of expense and we're going to create an income account at
this moment notice quickbooks knows it's an income account income from billable repairs
that's all you have to do and save and close now we save the edited account and now when we open
the trial balance ah ah-ha look what happened repair expense came back to 200 and income from
billable repairs showed up for the first time as 200 because the preference was changed at the
moment we mapped the item so it will retroactively change anything that you did before now
if we take a look at the profit and loss by client you'll notice that only betty has 200
income we have 200 income from repairs from betty and we also have 200 in repair expense we have
both instead of neither see 200 here and 200 here we have both instead of neither because we are now
tracking billable expenses as income now let's map our other billable expense we didn't do this yet
so it's important to see it how it would look if it were changed from the beginning
so let's change research expense to income from build research and then we'll do an example
so let's go ahead and do this list chart of accounts account new it's an income account
excuse me we won't do it that way we will instead
go to research expense and then edit the account so that we can click this check mark
this way we know that when we scroll up an add new account it's an income account
income from billable research
and you can add the account on the fly by clicking save and close and now we're
connecting it to this account by clicking save and close for the edit now of course the trial
balance won't change because we didn't record any research expense transaction for example
let's imagine on may 15th we paid the research guy fourteen hundred dollars for a job related
to candy charles the client and we'll build candy later for this now when we pay for the research on
may 15th what will happen cash and bank will go down and the ex uh and it will become 11
and the expense will go up and it will become two thousand okay because we already have 400 in
research so we take a look see research expense we already have 600 but it wasn't billable you see it
was tracked to a client but it wasn't billable but now look what happens when we just pay
when we pay we write a check and it will be may 15th of i think our little story is 2017.
okay and it comes out of the cash and bank account got to be careful
and we're paying a research guy so you can just put research guy
okay and the account that it goes into at the moment we pay is research expense for 1400
and we know this relates to candy and that it's billable so we're going to click save and close
and notice the trial balance is exactly as what we expected cash decreased to the number that we knew
it would eleven thousand eight fifty and research expense 2000 double click you see they all went
directly into research expense let's also observe the profit and loss by client if we look at the
profit and loss by client under candy we see that for candy there's 1800 in research expense
because 200 prior research expense was for alan and if we double click this we see just for candy
there were two checks prior for research expense so the numbers are what we need them to be
going into the next section now let's continue in the example
and let's imagine that we're billing candy for three thousand in legal fees
and we are including the may 15 research so when we bill the client what happens
the accounts receivable goes up because the client owes us more and the income account re uh income
from research uh billable research of course will go up because we get income from billable expenses
but the expense itself will not change now that we change the preference research expense will not
change instead the related income account will go up so what will change in the trial balance
at the moment we bill for this research well there's no change to the research expense account
the research expense account this time will stay the same even though we're billing for
it instead of changing what we will see is income from billable research show up for the first time
as fourteen hundred dollars and of course because there are three thousand dollars of legal fees
on this invoice uh income from legal fees will increase by three thousand and become
twenty four thousand nine forty six and it's all going into the unearned legal fees account