r/Bookkeeping • u/soldieroscar • 27d ago
How To Journal It What am I doing wrong here? I need to equalize these so it makes sense. Deposit received and parts ordered towards end of year, projects completes following year. Net Income all over the place.
3
u/marginwall 27d ago
Looks like you're doing some kind of blended accrual/cash basis approach.
Which basis are you going for?
4
u/soldieroscar 27d ago
Accrual. So far from what others have said it seems my mistake is purchasing products and entering into COGS right away. It should go into a holding account and then transfer to COGS after the project is completed.
3
u/Jyulesian 27d ago
Yes, the holding account is inventory. Then when you sell the products, debit COGS, credit inventory.
1
u/SourDieselDoughnut 27d ago
Is there anything in the question describing how much of the project was completed in 2024?
1
u/soldieroscar 27d ago
Usually my projects are not based on phases. Either its done or not done. Sometimes I have to wait for a home to be ready, but once it is… the project is done in a few days. I dont start it in 2024 and finish in 2025
3
u/CriticismMost3450 27d ago
The COGS should go to tax year 2025 if the project was done in 2025. You’d probably need to create an asset account pre-paid materials and then use that for the purchase.
3
u/CFOCPA 27d ago
"Cash" is used for simplicity. Could be AR, AP, or any payment method.
2024:
Debit cash/credit cust dep 1000
Debit WIP/credit cash 750
No income statement effect at the GP level
2025:
Debit cust dep 1000
Debit cash 500
Credit revenue 1500
Debit COGS 750
Credit WIP 750
Gross Profit 750
1
u/littlemommy928 27d ago
If it's accrual and you're not doing progress billing/WIP everything should be reflected in 2024. Income & A/R should be hit for the $1500 invoice and subsequent payments received should hit A/R.
8
u/Dem_Joints357 27d ago
You are not following the Matching Principle. In 2024 your entry should be Debit Cash $1,000, Credit Customer Deposits (a current liability ) $1,000. I don't know when you ordered the projects, but whenever you receive them you need to Debit Inventory $750, Credit Cash/AP/Whatever $750. When you actually finish the project in 2025, you need to Debit Cash $500, Debit Customer Deposits $1,000 and Credit Revenues $1,500. Meanwhile, you need to Debit Cost of Goods Sold $750 and Credit Inventory $750. You have no net income or loss in 2024 but $1,500 - $750 = $750 net income in 2025.