The Accounting System

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Design Manager is an accrual accounting system.  In the simplest terms, accrual accounting means that client invoices are held in an Accounts Receivable account until the client provides you with payment, and vendor invoices are held in an Accounts Payable account until you pay your vendor.  This allows the system to record the sale or the purchase of goods without yet receiving the payment from your client or sending payment to the vendor. Opposed to an accrual system is cash-based accounting where the sale or revenue is recorded at the time the final payment is received from the client.  Design Manager uses the accrual-based method because it is much more flexible, and it allows the system to give you a more accurate picture of where you stand financially.

 

The following is a summary of how transactions affect accounts in Design Manager, described using “increases and decreases” terminology instead of debits and credits for simplicity:

 

Receiving the client deposit:  increases your cash (or Un-deposited Funds) and increases your Client Deposit account.  The Client Deposit account keeps track of all of the deposits that you are holding from your clients. Note:  Creating a Proposal does not affect any account balances because the client does not have to proceed with the work or may choose to revise the Proposal.

 

Sending a deposit check to the vendor:  decreases cash and increases your Vendor Deposit account.  The Vendor Deposit account holds all of the deposits that you have paid to your vendors until you receive the bill. Note: Creating the purchase order document does not affect any account balances because it is simply an order and could be canceled or revised.

 

Receive the invoice or bill from your vendor:  increases your Cost of Goods Sold and decreases your Vendor Deposit Account.  This transaction also puts the balance due of the invoice or bill into Accounts Payable.  Your Accounts Payable account holds all of the bills that came in from your vendors that you have not yet paid, including vendor deposits that have not had checks written for them yet.

 

Give the final invoice to your client:  increases sales, increases the amount of sales tax that you owe, and decreases your Client Deposit account.  Invoicing the client also puts the balance due of the invoice into Accounts Receivable.  Your Accounts Receivable account holds all of the invoices that you have sent to clients but have not received payment for.

 

Write a check to pay your vendor:  decreases cash and removes the invoice or bill from Accounts Payable.

 

Receive the final payment from the client:  increases cash (or Un-deposited Funds) and removes the invoice from Accounts Receivable.

 

Design Manager also handles some other accounting transactions that are not associated with a particular Project.  Examples include operating expenses such as your rent (increases a rent Expense account and  Accounts Payable) and miscellaneous cash receipts such as a refund (increases cash and decreases Cost of Goods).

 

See our Suggested Monthly Bookkeeping Checklist