I often receive questions and have follow up discussions regarding the idea of a posting period versus reporting that is date-driven (such as Quickbooks). In general, the Posting Period idea allows you to control the ups and downs with the Income Statement.
For example, you may have a progress bill that covers July 1st through July 31st and is dated August 5th. In a date-driven accounting package, the August 5th invoice date will show the income in August, but all the costs for labor and materials will be in July. As an example, July would look awful (no revenue, all costs) and August will look incredibly wonderful, neither of which is true.
By posting the August 5th invoice to Period 7 (July), you can maintain the integrity of the date and still post the progress bill invoice to the month in which the work was performed. This allows you to see your revenue minus your direct costs (the first section of the Income Statement) to see how you’re doing. If you’re using Quickbooks or other date-driven software, be sure to date the invoice July 31st in the software so the costs and the revenue end up in the same month.
Using the Posting Period method allows you to maintain the integrity of the document’s date and still accommodate the month in which the work was actually performed. There are many applications of this accounting method including your Client billing (T&M, project work, progress billing), posting of Payroll, and the posting of AP invoices. If you follow this guideline diligently, every month, the Income Statement will give a much better and more accurate picture of how you’re doing, month by month.
Need some specific examples or some help applying this to your regular process? Just give us a call; we love this stuff!