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Due/To From Accounts - Thomas Kim from Tabular LLC

Due To/From (DTF) accounts are a great tool in a bookkeeper's tool bag, because it is very useful and it is very unique. But it is also very powerful, and you shouldn't abuse it. Let's get into it.

First of all, let's see what the definition of Due To/From accounts are. They are Balance Sheet accounts set up to track transactions between the company and other parties, usually the ownership or companies under the same or similar ownership. Intercompany transactions, right? They usually are for minor expenses that will probably be washed or reimbursed within the month, quarter or year. This is a personal preference, it doesn't have to be this way, but I like to have, Due To/From accounts set up in the balance sheet.

Something about it in the balance sheet has a little bit more flexibility, a little more wiggle room for things like this, and I've seen other accountants and bookkeepers had set up Due To/From accounts in the balance sheet as well. So let's take a look within QuickBooks online, and see how this looks like.

We're going to look at one of my favorite fictional companies, Sterling Cooper Draper Pryce. If you're a fan of Madmen, you know what I'm talking about. Of course, we're looking at the balance sheet as of September 1st, 1964. Period-accurate, because they used QuickBooks online back then, right? And here we are in the balance sheet, and we see in their other current assets, a Due To/From partner Roger Sterling for $321.54. Roger, I'm not going to ask you what you're doing with this money. That's your business. You're a partner, please don't fire me.

But yeah, that probably is something that the partner used. He used company funds later on, maybe after the fact it's been recognized as a personal expense, and he will reimburse the company. That's a positive balance on the asset side, so funds coming back to the company, back to the books. So we'll keep that there, and maybe at the end of this month or at the end of the year, whenever it is, this partner will reimburse the company to wash out this balance. It's very important that they do that, and so keep the books clean, keep all the ins and outs clean. And for the next year, you'll start off with a clean slate.

It's very important to also recognize what DTF accounts are not. So let's take a look at that. Due To/From accounts are not money owed from clients for goods and services, that is accounts/receivables. It's very important to label accounts very clearly, because the label of the account determines how the account's going to be used within the accounting of this business.

If you're just going to receive money from your clients and put them on your Due To/From, what are you doing? That doesn't make any sense, especially if it's for goods and services sold. Same thing with vendors, if it's goods and services purchased and you owe that money to the vendor or supplier it's on, that's accounts payable, baby. That goes on the A/P, not DTF.

Money borrowed to employees. Once again, labeling is important. That is employees' advance. I understand this is a very, very rare occurrence in the business. All your employees are very good and they don't borrow, or they don't ask for advances. That's fine I guess, because it's too rare of an occurrence. Put that in a DTF, we'll figure that in the next payroll run. But as far as employee advances go, that seems to me for mid-sized businesses, even small companies, pretty common. So that should be in the employee advances on the balance sheet side, and as with all loans there should be a promissory note. Same thing with ownership. If the ownership wants to lend money to the business, or fund the business, there should be a loan payable/receivable with the promissory note.

So these are some examples that should not be part of DTF accounts. That's completely separate, and the key thing about DTF accounts is that they are short-term minor expenses that are meant to be washed out or reimbursed in the near future. My name is Thomas Kim, I'm a bookkeeper here in New York City, please drop me a line. Thank you.

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