QuickBooks Online 2020 to advanced customer payment or unearned revenue method number one, get ready because it’s go time with QuickBooks Online 2020 to two we are in Alberta get great guitars practice by we set up with a 30 day free trial holding down control scrolling up just a bit to get to the one to 5% currently in the homepage,
otherwise known as they get things done page. In the business, you ask compared to the accounting view, if you wanted to change to the accounting view itself, then you can do by going to the cog up top and then switch into the accounting view down below.
We will be toggling back and forth between the two views, either by toggling here or jumping over to the sample company file currently in the accounting view. Going back over we’re going to open a few tabs to put reports in right clicking on the tab up top to do so and duplicating it back to the tab to the left, right clicking again, duplicating again, back to the tab to the left, right click it again and duplicating another time.
As that is thinking let’s jump back over to the sample company file, which is in the accounting view to see where the reports are located. On the left hand side where it says reports, that’s where you’ll find him.
They’re not hiding, they’re right under the Reports tab. And then if we jump back on over a little bit further down, but not too deep. If we go into the second tab, we’re in the business overview. So we’re going to select that item, we’re in the reports on the left hand side, closing up the hamburger.
We’re going to go down to the balance sheet first of the balancing of the sheets and do the range change up top from a 101222 1230 122 and run it tab to the right.
And we’re going to go down to the business overview again, reports section we got to go down to the profit and loss closing up the hamburger. This one’s going to be the year to date profit loss P and L income statement with a range change a 1012 to 1231 to two, run at tab to the right, tab to the right.
And then we’re going to go down to the business overview and close up the hand bogie and then we’re going to go down and do the profit and loss again, instead of a trial balance.
So we can run the profit and loss for the current month of February to see the year to date and the current month. So we’re going to start this one I O to a one to two to 1231 to two and run that one. Let’s go back then to the first tab,
I’m going to hold Ctrl scroll up just a bit, we’re going to imagine a scenario now where we’re going to get a prepayment for a guitar. In other words, someone comes in and says, I would like this particular guitar.
And we say hey, maybe we don’t have that guitar on on hand at this point in time, we’ll order it for you, we’ll get it for you. But we would like to get a down payment at this point in time to make sure that you’re committed to the process.
So that it is worth our time to go through the process of whatever we’ve got to do to complete the purchasing or getting of the guitar that we can turn around and sell to you. That means that we’re going to get money in advance.
So if I go to the first tab here, in other words, if I get my money in advance from this customer, and I select my trusty drop down, I’m going to say well, what box should I check because usually when I make a sale, I have an invoice or I have a sales receipt. But at this point, I didn’t really make the sale because we haven’t actually given the guitar, we kind of received a payment.
But the receive payment form is usually what you use after you have the invoice and then receive the payment. So we’ve got a prepayment situation in financial accounting that’s typically referred to as unearned revenue type of situation. In other words, you’ve got money, but you didn’t earn the money, you got money in advance of doing the work. Now this is a little bit tricky with QuickBooks.
So I’m going to go over the theory of it a bit. Because it there’s a couple different ways that you can handle this and it’s a little bit different. Or you might see it handled a little bit different than you would see in basically an accounting course for financial accounting theory. So I’m going to go to my flow chart. This is the desktop flowchart, but it’s just a flowchart. It’s got the same form names. And so that’s what we will be using.
Normally, when you do work, typically what happens is you will basically do the work before you build a client in which case you’ll have an invoice which will increase the accounts receivable and you’ll receive a payment later or you do the work at the same time. For example, any cash register situation like a restaurant where you do the work and you get paid at the same point in time.
However, in some industries, you might have a situation where you get the money first. In other words, you basically receive the payment here before you did the work. You haven’t invoiced them. You haven’t and created a sales receipt, they got the money beforehand.
And some industries, that’s just the typical way the scenario goes, the classical examples being something like a newspaper company, or a magazine, where they basically have a subscription model, which is becoming more and more common for applications as well. In those instances, the company gets paid for a year’s worth of service.
And then they provide the newspaper, the magazine, the application for the following year. And that instance, when they get the money, in theory, they should be increasing cash because they got the cash and the other side shouldn’t be going to revenue because they haven’t earned it yet. But rather, should be going into a liability account, often called unearned revenue.
So that’s going to be a general scenario for those types of industries that basically all their revenues go through unearned revenue, because that’s the Collect before they provide the service. And that instance, oftentimes, or the goods, you might also have a situation where your rental company,
and you get basically the the last month’s rent or something like that, or security deposit works in a similar way, and that the company gets money, but they have to either give it back with regards to the security deposit, which we all know is never going to happen. They’re just gonna say, Yeah, we had to fix the house.
And we’re not giving you now. But in any case, you might you got in theory, you got to give the money back at the end or something like that. So you haven’t earned it at that point in time. So you can’t record it as revenue, it should be recorded as a security deposit some kind of liability accounts,
something that you owe back to them. In our instance, we might have a situation any kind of area where you have a custom job, that also is an area where you might get paid beforehand. So for example, if we’re going to order in this case, a large piece of equipment or a guitar, then we might want to get a deposit up front to make sure they’re committed to the purchase.
So I can make this order of this custom, you know, guitar, which is some some color that we don’t think anybody else would possibly want or something like that, but this person is ordering it specifically. So we’ll order for you, if as long as you commit to purchasing it,
because I don’t want to be stuck with this guitar color or whatnot, I don’t think I could sell it anywhere, you know, so we’re gonna have to, we’re gonna have to do that. So we’re going to get the payment beforehand.
Now when you get the payment beforehand, in in accounting theory, you should increase a liability account, which would be unearned revenue. The problem with that, however, is that we want to be able to track it in the Customer Center,
and the liability accounts don’t really have the sub ledger connected to it for the customers. In other words, what we would like to do is get the payment beforehand and tie it to the eventual invoice that we will then be making once we get the guitar.
And the way we do that is by using the accounts receivable subledger. Typically in practice where it usually works, where we enter the invoice, and then we connect the receive payment to it. In this case, we’re receiving the payment first,
we would still like to connect the eventual invoice to it. So that’s why a lot of times in software, we’ll actually end up with a negative receivable that we will record because it works logistically instead of a positive liability, so that it can use the sub ledgers,
the sub reports that are connected to the Customer Center, which are tied to the accounts receivable account.
So hopefully you can see why logistically the software ties those things together, because we’re dealing with customers here. So that’s what we’ll do first, we’ll actually create a negative receivable which isn’t quite right from a financial statement reporting purpose.
And we could still use adjusting entries then to shore that up meaning we can then at the end of the period, or the month or the end of the year, do an adjusting entry to to increase the receivable and record the other side as unearned revenue on a periodic basis.
So that’s the first method we can do. And then in the second method, we’ll actually create the unearned revenue we can try to fit fit the unearned revenue in there, but it doesn’t create as nice of a link between the create sales receipt and the receive payment.
So from a bookkeeping standpoint, just to tie out these Ledger’s and track the receivables and the end the balances this negative receivable actually works better a lot of times than creating the unearned revenue account.
So we’ll do both methods though starting with this method. So let’s go back on over and let’s imagine that we’re getting a prepayment so what we’re going to do is I’m going to hit the drop down and I’m going to say that we got the received payment before the invoice so we’re going to receive a payment that
we know decreases the accounts receivable but there’s no actual receivable to decrease because we haven’t yet gotten done done the work yet. So we’re going to say this is for Anderson again, Mr. Anderson. Does we do a lot of business there,
Anderson guitars payments doesn’t have an open invoice. They’re saying hey look, there’s no invoice down here to tie that payment to and we’re gonna say that’s okay because we’re going to create a negative receivable tying an invoice to it.
Later, when we complete the process, we’re going to say that this happens on Oh 225 to two. And let’s just say the method is cash for practice purposes.
And it’s going to be going into the undeposited, or previously known as the undeposited. Funds, now called the payments to deposit account instead of going into the checking account directly.
And then there’s nothing to check off down below because there’s no invoice down here. So what’s this going to do, it’s going to then record an increase to this on deposit, what used to be undeposited funds now is payment to deposit the clearing account,
the other side is going to decrease the receivable because that’s what it does here, it’s going to tie it to this customer, which is Anderson guitars, but it has no other invoice to link to. So it’s gonna have that negative balance, kind of hang in there for that customer.
So let’s save and close it and check it out. Save it and close it. Wait a second, I need an amount you have to have an amount here. $300 $300 is the amount date is correct. Let me double check everything okay?
Try it again, save it and close it amount is important. And then it gives you you don’t select any invoice, you didn’t select any invoice, you’ll save this payment as a credit,
meaning it’s something that will have available to then apply out to a charge you have in the future, possibly with an invoice to your customer. If you want to record a payment without an invoice, use a sales receipt.
So I’m going to say all right, I’ll let it show me that again, we’ll say Save as a credit, please. And then we’re going to go to the balance sheet and check out what happened. But first, we got to run the report to make sure we got fresh stuff.
And then if we go into our clearing account down here, which was which was the payment to deposit used to be called unearned revenue, same same concept, different names, same concept, different name. If we go down and scroll down, then we’ve got this payment way down here for the $300.
Going back up top back up top back to our report, scroll and back in the other sides in the A to the are the accounts receivable representing that, that usually that people owe us money, that’s what the total represents. But we’ve got this $300 down here, that is a decrease that’s not tied to any invoice.
So I can’t see basically that it’s a negative kind of amount here. But when I look at the actual activity for the customer, I will be able to so let’s go back on over and take a look at the sub ledger. This time, I’m going to go to the report to the right to do so right click on it, duplicate it.
And we’re going to open the sub ledger report for the A our accounts receivable, checking out Mr and or sin. So we’re going to go to the reports on the left hand side so that we can open one up, closing up the hand bogie and then going down, we’re going down to who owes you money.
And we want to take a look at the customer balance details look at the detail, customer balance detail. And let’s change the dates because I have to I’m working in the future here. So I’m going to make it 1231 to two and run it holding ctrl scroll and down.
And you can see Mr. Anderson here has a negative $300. Which is weird because if we have a negative receivable that would mean what that we owe them money. Wouldn’t that be a liability instead of a receivable it would it should be called unearned revenue.
But the total receivable is still positive. Of course, it’s just understated now by that $300 This works great logistically because now once I create the invoice, I’ll be able to tie the payment out to the invoice under the customer of Anderson guitars,
which I cannot do as easily if I was to make an unearned revenue liability account, which doesn’t have this sub ledger that’s connected to it.
So we’ll see a way to do that possibly in the future. But you could see how logistically from from an accounting standpoint, this method actually works quite well. From an internal kind of standpoint. It’s it’s, it’s not exactly correct from a financial reporting standpoint. And we can still adjust it basically, we can use our adjusting entries.
So if this is something that works well internally, and you need to report financials at the end of the period, you can then go through this list at the end of the month or the end of the year or have your accountant do that and take any of these negative numbers
here and basically make an adjusting entry increasing the accounts receivable the other side going to unearned revenue, just so you have that there for the reporting purposes just like many other adjusting entries we do,
making it easy as possible for the accounting process to do what it does, and the adjusting process to make the adjustments as quickly as possible for the reporting to be done as easily as possible.
And then reverse that adjusting entry so that we can get back to what works internally from the bookkeeping side of things from a logistical side of things. So we’ll talk about the adjusting entry later.
But that’s that’s the general idea. Now note that once the invoice has been made, and this matches out, you no longer have a problem, because then it’ll be we’ll be back to just any normal situation the invoice will match out to the payment. And it’s not a problem at that point in time,
it’s only slightly misstated the financial statements at this point, when you have the deposit that you’re hanging on to that you haven’t done the work yet for, because you have an understated asset as opposed to a liability. Okay, let’s go back to the tab to the left hand side. And let’s check this out another way by going to the get paid and paid area and look at the customer center.
So if I go into the Customer Center, for example, and if you were in the accounting view, by the way, that would be over here in the sales section, we can go in there, that’s where it would be located.
So now I’m going to go into here and let’s go into Mr. Anderson guitars, Mr. Anderson, and then so now we’ve got this payment. And it says right here, it’s unapplied. It’s unapplied. So that’s how we know from there that we need to apply that out.
That’s how we know what we have what they often refer to as a credit that we can apply to a customer meaning and notice that term, that a lot of times that term takes on its own meaning as if it just means that you’re going to decrease the customer balance or something like that it’s a benefit to the customer. It’s really from debits and credits.
Because to us, if it’s an accounts receivable account, it should be a debit balance account. And if we credit their account, then we’re crediting or lowering the account. So when I say I’m crediting a customer account, I’m crediting actual debit and credit on the credit side of the ledger, which lowers the receivable, the amount that they owe us, in essence, so that we credit in your account by that that’s what it kind of means. Okay?
Let’s do it. Again, ultra various Ultra veg store again, what’s it the carrot, or the hamburger, and then we’re going to say plus, and I’m going to make another one, we’re going to receive the payment that we don’t have an invoice yet for for another customer. This time, it’s gonna be Sam, the guitar man, Sam, the guitar man is ordering a guitar. He’s saying, hey, I want this specific, gaudy guitar that I’m like, Man, I don’t know.
But if that’s the kind of if that’s the kind of guitar you want, we’ll get that with the with the glitter on it or something and some in some stuff. But we want to make sure that you give us a downpayment. First, just so you’re committed to the purchase. So we’re going to say that we’re going to have the payment, it’s going to go into the undeposited funds.
And we’re going to say that it’s going to be for 250 that we’re going to receive now I’m not going to apply it to an invoice. Notice down here, he’s got an open invoice, Sam the Guitar Man, I’m going to uncheck it because I don’t want to apply this payment to that invoice. This is a prepayment that we’re going to say that I want to apply to a future invoice.
So I’m not applying it into anything down here. This is going to decrease the accounts receivable not tied to any invoice and the other side is going to be going to, to our our clearing account the payments to deposit which used to be called undeposited funds.
Let’s save it and close it and check it out. I’m going to say okay, save it, he’s got a credit that’s going to be applied. That’s what we want. That’s what we want to happen. Let’s go to the tab to the right and then run it again holding CTRL down scrolling up if I go into that clearing account previously known as undeposited funds,
currently called the payments to deposit section going into that one scrolling down, and we see we’ve got the payment right there. And then going back up top again back to my report. holding CTRL down scrolling a bit the other side is in the A to the ARD A to the are the accounts receivable,
a slash our account scrolling down, there’s the 250 for the payment looks normal there, except it’s not tied to any invoice which we can see more clearly.
If we were to jump on over to the sub ledger report, otherwise known as the customer balance detail, let’s run it to make sure we got fresh stuff happening. Scrolling on down to Sam, the Guitar Man Sam, where’s Sam? There it is.
So there we’ve got this payment right there 250. Once again, we got a negative payment, it really should be a positive liability. But if we were just to put it into an unearned revenue account, it wouldn’t be tracking by customer for Sam the guitar man and we wouldn’t be able to apply the invoice out to the payment which we want to do and therefore the negative receivable actually works quite well logistically,
even though it’s not exactly proper for financial reporting purposes. And when they’re in is an instance where it’s easier to do something one way on the bookkeeping side but not quite exactly right for financial reporting.
We will do an adjusting entry at the end of the period To make it right on a financial basis purposes at the end of the period monthly, or yearly, again, this adjusting entry is not the adjusting entry you will typically see for unearned revenue. Because usually for unearned revenue in a book problem, we apply all the all the revenue or all the cash we get into unearned revenue.
And then you have to determine how much revenue would you have earned, decreasing unearned revenue and recording the income, that’s a more classical kind of adjusting entry because there’s a timing difference to it, it’ll have a balance sheet account and an income statement accounts.
But the idea of having doing what is is logistically good or easy, or the most efficient process on the bookkeeping side and then adjusting periodically, monthly, or, or yearly, in order for reporting purposes, is, you know, the same kind of adjusting kind of concept that we can, you know, apply, of course, and that’s what we will do, we’ll see that in the adjusting entry entry section.
So if I go back to the first tab, and if we go back into the Customer Center, this time for Sam, the guitar, man, why is this? Why is this thing up there?
Hold on a second. Okay, I got rid of it. Don’t worry, I got rid of them. Here we go. We can get back to business now closing up the hamburger, I hope I didn’t mess anything up. We’re gonna go to Sam the guitar man down here, Sam, the Guitar Man, we could see once again, here we’ve got this unapplied payment.
Okay, we’re gonna do it one more time. One more time back to the first tab, I’m going to hit the ham Boogie On the plus button. And we’re going to go down to we’re going down to the receive payment one more time.
And this one’s going to be for Eric music, Eric music. Customer. Eric also wants a guitar they got they all got these three people got it in their head that they want this, this particular guitar, and we don’t have it was like I don’t know, people. I don’t want that in my shop.
But if you want to order it, we’ll order it for you 200. And so the same thing, this is gonna this is going to decrease the receivable not tied to an invoice. But it’s going to go into the undeposited funds, which is now known as the payment to deposit, save it and close it.
And we’re going to say yeah, we want to apply the credit out, checking it out, we got now this amount is now in the payments to deposit other side is going to be in that AR I don’t even need to drill down on it again.
Because you’ve seen you know what, you know how the things work this time, notice that nothing’s been happening to the income statement profit and loss. Because we haven’t earned the revenue yet. Because we haven’t delivered the Qatar in this case.
If I go then to the accounts receivable report, scrolling down Eric music, there’s the negative 200 there for that one as well. If I go back to the first tab, and I was to take a look at Mr. Eric music, then we would find that undeposited thing there too.
So unapplied status for the payment. Let’s go ahead and make the deposit now. So I’ve got the money, so I’m gonna actually put it in the bank.
So if I go back to my balance sheet, I can see that in that in that payments to deposit that we’re holding on to $550, we’re imagining we’re going to the bank and making the deposit all three of those payments we received are going to hit the bank statement at one time.
Therefore, we want them hitting our cash account at one time our checking account in the books. So I’m going to go back to the left hand side and go to the ham boogie. And then we’re going to go to the big deposit, bank deposit. And this is going to be on 225 I’m just going to check three of all three of them off, but you could do it one at a time.
But that takes three clicks. And you can do it with one click by clicking clicking that one up top. So that’s what I’ll do to save some energy.
And so then we’ve got the 750 down here, this is going to go into the checking account for that lump sum 750, which we expect to see on the bank statement making it easy to reconcile the undeposited funds or what it’s called now whatever it’s called.
Now the thing to be deposited, we’ll have the three separate amounts in there. Let’s save it and close it and check it out. Going back to the balance sheet balance sheet, and we’re going to say that in the checking account, we should have the one lump sum, one lump sum down here of the deposit for the 750 that is going to be matching out to what is on the bank statement and then going back to our report.
Other side is in the payment to deposit payment to deposit right there. It’s back down to zero. This used to be called undeposited funds. It’s what I call a clearing account. It goes up and then it goes back down.
But not a temporary account, but a clearing account because it does so not just on a month. basis, you know, when it’s served its purpose goes back down, and we can see the three amounts here as it goes back down so we can do some ticking.
And some time seeing the activity, we can see exactly what happened, what what took place in that account. So let’s go ahead and check out our trial balance to see where we stand at this point. In future presentations, we’ll be making some invoices and we’ll be applying those credits out to the invoice completing the process for these people that pre ordered their guitars.
So let’s go to the reports here. And let’s type in the trusty trial balance so we can look at it trial balance, I want to look at your trial balance, pull it up, pull it up, ranging the changing Oh 101 to two to 1231 to two, run it. And this is where we’re standing. Here’s our two legs, the debit and the credit leg standing up.
And if your debit and credit legs have the same numbers, and you’re following along great if not try changing the date range. Sometimes it’s a date range issue. And we’ll be doing a transaction detail report at the end of the section, which is a great report for diagnosing any differences.