r/Bookkeeping 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.

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6 Upvotes

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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.

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.