The same repair produces different entries depending on whether you keep your books on cash or accrual. Toggle between them to see how the entries differ. Most small shops are cash basis for tax purposes but may find accrual useful for making business decisions. We operate on a hybrid model of modified cash basis, described below.
It needs a full setup and some electronics work. You quote about $250 in labor plus parts & sales tax.
* Bonus points if that estimate is mapped to your income accounts, can be formally approved by the customer, and converts straight into the invoice later: no re-keying, and you have a record of what they agreed to. No entry Why nothing posts No entry Why nothing postsMoney in the door before any work is done. This is where cash and accrual will differ.
Asset Liability 2 entries Asset Liability 2 entriesIf you follow the cash-basis tax treatment, it books straight to income
Cash basis generally makes an advance payment taxable when you receive it, which is the second entry. The first keeps it as a liability. That is modified cash basis, and it is what we use in our shop, because you owe them either the work or a refund and it stops a busy deposit month from looking like a great month. Choose the one that makes the most sense to you and discuss it with your tax preparer at year end so they can make book to tax adjustments accordingly.
On accrual the entry and the treatment agree: a deposit is a liability until you have earned it, and it becomes income when the work is done.
Two pots at $4.75 each ($9.50) and a capacitor at $1.95: $11.45 on the shop credit card, tax-exempt and wholesale priced.
Expense Liability 2 entries Expense Liability 2 entriesA card charge counts as paid when you charge it, so this is recorded the same on cash basis and accrual. Your resale certificate saves you from paying sales tax on this purchase, since you will be charging the customer for it later, and hopefully wholesale pricing can earn you a healthy margin!
Same either way. Note this cost lands before any related income exists, one reason a single month can look strange in isolation.
You tally up labor, parts and consumables, plus your margin on parts, to get the subtotal: $282.90, your gross revenue on this job. Your POS calculates sales tax on the applicable line items, bringing the total to $301.29. Apply the $100 deposit already received, then send it over and let them know the guitar is ready for pickup.
No entry Why nothing posts Income Asset Liability 5 entriesBonita Springs, Florida 34135
United States
reflectionguitars.com
On accrual, income records now: the work is done. Note the sales tax is a liability, never income, on either basis.
Bill consumables separately or bury them in your rate. Either works, as long as you know your pricing covers the wire and solder and not just your desired hourly wage.$201.29 on a Visa. The $100 deposit covers the rest.
Income Asset Liability 6 entries Asset Liability 3 entriesThis is the moment income exists on cash basis, and the deposit liability clears because you have now earned it. Note that not all of the $301.29 is yours: $18.39 of it is sales tax you collected for the state, and it posts to Sales Tax Payable, not income.
Income already recorded when you invoiced, so this step only moves money: the receivable clears and the deposit liability clears.
Your processor keeps $9.04 and deposits $292.25.
Expense Asset 3 entries Expense Asset 3 entriesThe number in your bank matches nothing on the invoice. It is the $301.29 total minus the fee, and $18.39 of it still has to be paid to the state by you.
Identical on both bases. Processor Clearing returns to zero, which is how you know nothing was missed.
The $18.39 you collected goes to the state.
Asset Liability 2 entries Asset Liability 2 entriesNeither side touches your P&L. Collecting it was never income and paying it is not an expense. It only ever moved through a liability.
Same on both bases. If this balance only ever grows, nobody has been paying it.
How you line-item can change what's taxable
In some states, repair labor is exempt from sales tax, but only if it's stated separately from parts on the invoice. Bundle labor and parts into one line and the exemption can disappear, making the whole thing taxable.
Other states, Florida among them, go the other way: if you supplied any parts or consumables on a repair, the labor on that repair is taxable too. Itemizing it separately doesn't make it exempt.
Either way, the invoice format isn't always just a presentation choice: it can be a tax determination. Worth knowing which rule your state follows before you decide how to write your tickets. The sales tax guide covers the Florida rule in detail.
Need help applying this to your shop?
I can help you set things up correctly, whether that's your chart of accounts, your sales tax compliance, or your bookkeeping workflow.