When to create an invoice vs. just paying an expense

Question

Hi, 
 I am new to bookkeeping and have had formal training in bookkeeping however they never really taught us when to use the create an invoice feature vs. the pay an expense option. I am doing books for a company once a month so I receive everything once it has been paid and everything is up to date and paid via direct withdraw from their credit cards or bank accounts so we just get the bills. The transactions are consistently the same (mostly subscriptions to software and cloud storage) and usually/rarely differ from month to month. Currently I just use the pay expenses tab to input everything so I don't have to create a hundred plus inventory items for invoices. They also have gas and meal expenses so those are done the same way. I am very detailed when I use this method, is it an ok way to do things or should I be using invoices. Rent is done with invoices since currently they are trading services for rent and utilities and I am using a cash clearing account to still keep track of the transactions with taxes that are not trading actual dollars (they are labeled as a trade). 
 Thanks in advance for the help

AmyGurl · Accepted Answer

You definitely don't need to set up inventory items. 
 It is not mandatory to date expenses/bills on the date that they are incurred on a day-to-day basis. At the end of the year, the accountants should make an adjustment for outstanding costs (accrued liabilities). You have several years to claim the HST ITCs on purchases, so that's not a problem either. If the bills from the suppliers are paid as soon as they come in, then it is perfectly acceptable to record them all as pay expenses with the date of the payment as the transaction date. 
 Typically, I tell people to use the purchase invoice feature only if they have 30+ days payment terms with their suppliers that they do take advantage of. That is to keep proper track of how much is owed and properly match the costs with the revenues. I doubt there is much need of specific cost timing in this particular situation. 
 The timing of the sales is more important as CRA requires that the HST charged on sales is reported in the period in which the revenue is earned.

Richard S. Ridings · Answer

Using Pay Expenses/Make Other Payment is not wrong but it does force you to use cash basis accounting. Some people do that to catch books up quickly but have to do accrual entries at least at the end of the year to get the expenses in the proper period. I prefer using Purchases invoices and if the payment was made the same day, then change Pay Later to the method of payment, etc. When the payment is not made the same day, I then go to Payments (I usually keep the window open all the time) and make the payment for the proper day. 
 I like to work in reality as much as possible and if the phone bill is dated Jul 28 and the payment is made by the owner via internet payment in Aug, then the payment entry has to be done separately from the invoice because that is the reality of the situation. The expense is for July and the payment will hit the bank statement in August. 
 There is no need to set up inventory to use the Purchase invoice module. On any line item, you only need a minimum of three items. The dollar amount, the account to be posted to and if sales taxes are applicable, then you use a tax code. If you wish to enter a description (sometimes a really good idea), quantity, unit price, go ahead. It depends on if the information will be used in the future. Recurring entries are good for entering standard things that rarely change. 
 What people do not realise is that the Make Other Payment option is entering an invoice just like the Purchase module but the screen looks like a cheque to fool users into thinking they are just making the payment. But the expense is recorded on the same day and that is not always real. If it is real, there is nothing wrong with using it (though as I have said, I don't). If expense and payment dates are not the same period and you use it, then you need to make sure you do the proper accruals for at least year end, sometimes monthly depending on the owners.

Sage 50 Canada

When to create an invoice vs. just paying an expense

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