QuickBooks Online 2022 Delayed credit and credit memo, get ready because it’s go time with QuickBooks online 2022 Online in our browser searching for QuickBooks Online test drive going into the test drive, choosing the US version of it and verifying that we’re not a robot, sample file Craig’s design and landscaping holding ctrl scrolling up a bit to get to that one to 5%, we’re also going to have open the free 30 day trial over here just for presentation purposes.
So we can see the Business View as opposed to and in conjunction with the accounting view, if you don’t have access to the 30 day trial, that’s okay, we’re going to look at it more in the second half of the course, going back on over to Craig’s design and landscaping services hitting the drop down up top and prior presentations, we’ve been taking a look at the credit memo and the refund receipt. Now we’re gonna look at the delayed credit, which can be used in a similar way.
But there’s a couple different functions, you might think of being able to use the delayed credit, so that delayed credit is thought of you can think of it as in essence, you’re gonna have a credit that’s going to be applied at some point in the future to the customer. Therefore, when you enter the delayed credit, is not going to actually enter anything to the financial statements at the point in time you enter the credit, it will be entered into the system, when the customer then makes a purchase in the future. And remember, the term of credit can kind of be think it came from debits and credits.
So the accounts receivable is an asset account has a debit balance account, if we credit it, then we’re reducing the acid. And that would be the making the accounts receivable go down. So when we think about the credit in terms of talking to customers, they typically think of a credit as basically just a production of what they owe, or something that’s going to be applied to some purchase in the future, which is true. But you also have that debit and credit, kind of component to it to us.
On the bookkeeping side, we’re crediting an asset account, which would be reducing the asset account reducing the receivable or something that will reduce the receivable in the future, in this case, so one use that you could see this in would be that if a customer had some kind of complaint, they said, Hey, there’s a delivery, there was bad customer service or whatever, we might then say, okay, we would like your business, how about we give you a credit against a future purchase.
That way, we’re not actually giving them cash at this point in time, we’re trying to incentivize them to keep doing business with us. And hopefully, we can win over their business in the future, by incentivizing them to have a purchase in the future. That would mean that at the point in time that we have the credit, we don’t really owe them anything.
Therefore it’s not really a liability at that point in time, it’s just a promise that if they make a new purchase, that we would apply the credit, we’re not, we’re not saying that we owe it to you, if you don’t make a purchase, like a liability would be similar to a liability, therefore the liability wouldn’t go on the books, we would just apply it out at the point in time they make the purchase in the future. I’ve also seen people use this delayed credit and talk about using it with regards to a deposit.
So for example, and I don’t think this is exactly correct, but I can see why people would want to use it in this way. So for example, if you were to have a project that you’re going to do, and you want the customer to give you a down payment, I’m assuming they’re recording the down payment as basically revenue, and then recording the delayed credit that will then be applied out to the invoice they make in the future. The reason I don’t think that’s exactly the correct way to do it, because you’re recording basically, you know, the revenue,
I would think if that’s the way that it’s being done, at the point of time, that should receive the deposit, and it should really be on the books as a liability. So we’ll talk about that would be like an unearned revenue type of situation. We’ll talk about how to do that in the future. But one way you could do it. And the reason people like that delayed credit method would be because when you make the invoice, we’ll see a little pop up that comes up here. And it’ll show you that there’s a credit that you could tie out to the invoice, which is great, it’s perfect.
But also note, you can do that with a receive payment. So instead of when we get the advanced payment, we can jump to the receive payment. And that will record actually a negative receivable, which still isn’t perfect, because it should be a positive liability. But the negative receivable at least will be on the financial statements, and it will be allowing us to tie out to the invoice in the same way.
And it gives us the added benefit that if we have to then do an adjusting entry like at the end of the month, or here, we can find out those negative amounts and the receivable by by printing out the sub ledger. Whereas if we have these delayed credits, we’re not going to be able to kind of see them as easily might be a little bit more difficult to do an adjusting entry if you need to. So in the case of unearned revenue, kind of payments or pre payments, then I would use the receive payment and there’s another method to use as well. We’ll talk about that more in the unearned revenue section.
So we won’t use that too. Laid credit here for that method. At this time, you can also think about it as basically, what if someone returned, they basically returned the merchandise, or basically, we need to kind of like issue, what we would normally do is issue the credit memo, but we had already received payment. And at that point of time, we would have a refund receipt that we would be giving to them.
But you might say we don’t want to give them a refund, we’re going to agree that we’re going to give them a credit in the future for a future purchase. And that case, you might be able to use the delayed credit. But there’s still kind of an issue with that. Because if I issue if I do the delayed credit, then it’s not going to record the reversal until that future date. Whereas at that point, at that point, we could also enter an estimate, I mean, not an estimate a credit memo at that point, which would also create like a negative receivable, but it would record the activity at this point in time.
So in other words, let’s go to our flowchart over here. This is this is the desktop flowchart, but we’re just looking at the flow here. If we had a credit memo, usually if we had an invoice, and then we had reverse it that return the merchandise or whatever, we would then have to issue a credit memo which would reverse the accounts receivable. If they had paid us on the invoice and we deposited it,
or we had a sales receipt, and we deposited it, and we want to give them the money back, then we can have a refund receipt, which would be like a credit memo, but we would actually pay them back. But what if we want to say we’re going to reverse the transaction, but we’re not going to give you the money? Now we’re going to give you a future credit.
And in the future, you could use this, this this instead of using a credit memo, you could use the delayed credit in that case, but you might instead want to use the credit memo in that case, which would create a negative liability. And the question would be, do I need to record anything at this point in time, at the point in time, like if they returned the merchandise do I need to put the merchandise kind of like back on the books and record the reversal at this time and show the credit basically,
which would show up as a negative credit and the accounts receivable something that we owe that’s going to be on the financial statements, or should I wait until that reversal takes place when they actually make the purchase in the futures that the time period that it should facilitate the reversal? So let’s see a few let’s see the easiest case. And the first case, let’s say that someone came in, they complained about customer service.
And we said hey, we’ll give you $100 credit to your next purchase or something like that. So if we hit then the plus button up top, we’re just going to say right, let’s make a delayed credit. And we’re going to make a delayed credit for customer number one customer number one tab. And then we’re going to say add the new customer. And this is going to make it let’s make it on January 1. And I’m just going to make another item down here, which I’m just going to call the delayed credit, delayed credit.
And I’m going to make it either a non inventory or service item, I’ll go for a service item. And I’m going to say that this is going to be the description, delayed credit. And I’m going to make it go to the service revenue. So that means like when I net it out against another account, which might be the service revenue is the other account that when they purchase something, it will net out at that point in time and net out to zero, you also have to kind of think about the sales tax on it.
Because if there’s a sales tax implication, I’m going to save and close this, then then it’ll have like an implication on the sales tax. We’ll see that on the other side. So I’ll keep the sales tax at this point in time and say there’s a sales tax impact just so we could see a little bit more complex if a scenario. And we’ll say the rate, let’s give it $100.
So that means that at this point in time, nothing’s going to be recorded. But when we’ve recorded the invoice and apply this to it, it will decrease the amount of the receivable by the $100. And the other side’s going to be then going to the revenue account driven by the item that we set up. And there’ll be a sales tax impact, which would net against the sale item that has a sales tax impact.
So we’ll talk about that sales tax side. Notice that the sales tax isn’t calculating anything down below because nothing’s being recorded at this point in time, it’s just going to be pulled into the invoice. So let’s save it close it I’m going to say Save and Close. Let’s pull up a trial balance I’m going to right click on the tab up top duplicate it and will pick up a trial balance which is kind of like the balance sheet on top of the income statement to go a little bit faster because we’ve seen similar transactions in the past so let’s go to the reports.
Type in trustee Trial Balance the trustee T B Trial Balance closing the hamburger range chain change would say Oh 101 to two to 1231 two to run it. And so there we have it now nothing is is currently in the receivable So nothing has been recorded on the financial statement for that transaction.
Going back to the report, however, if we go to the tab on the left, and then go down to our basically our customer center in the sales tab, and pick up that customer, close the hamburger, we’re going to scroll down and look at customer number one. We see we see it in there, it doesn’t show it doesn’t show up balance or anything. But we see that we got the 108, we got the credit that we can apply, we’ve got the invoice that we can create directly from here, if I click on that invoice, it will then update an invoice with that credit memo already applied to it. Let’s close that out.
And let’s do the credit memo a different way or the invoice another way do you want to leave, I’m going to say yes, opening up the hamburger making a new button and then open an invoice this way. And then when I type in customer number one, customer number one, we get the pop up on the right hand side, this is that nice pop up, that gives us the reminder. And I can add the credit right there. That’s another that’s the other way we can do it close out that little caret.
And so then, let’s add an item. And let’s let’s assume the item has has, has sales tax that would be involved with it. So let’s say we have item number one, I’ll make it a service item but apply sales tax to it. Maybe I should have said non inventory. But we’ll say service item. And we’re going to say that the price let’s say it’s $300 service item $300. And we’ll say save it and close it.
And so there we have it. So I’m not going to deal with the inventory cost tickets sold at this point, just looking at this credit being applied out. So now we got the 300 charged and it’s got the sales tax, but it’s charging the sales tax at the $16. If I pull up the trusty calculator, which is going to be the 200. Net, times the point oh eight, that’s going to be the $16. If I said that this credit up top was not something that was applied to tax, then you’ll see that the that although we got 200 down here, it’s going to be applied out times to 300 times the point oh eight sales tax, which gives us that 24 on the sales tax.
So you got to be careful on as to what you’re going to do with the sales tax when you use this and other words. So we’ll we’ll put that back in place. And let’s check it out. Let’s save it and close it, save it and close it. And now it’s going to record this transaction. So we’ll go back to the tab over to the right where our trusty trial balances run it again, we’re going into the accounts receivable and the A to the AR going into the AR and we’ve got our invoice recording that 216, which is the bottom line number we had after we applied out the credit of 100 and the sales tax to 16.
Scrolling back up back to our report, other side is in the revenue account in the 200. So we’ve got the 200. And there it is, notice here it recorded the $300. And then the 102 separate items that add up to that that net amount, going back up top, and then we’re going to then say the difference went to the taxes up top to the Board of Equalization. And so then we’ve got the taxes at the 16.
So that’s the one method and notice it recorded both of those items, the credit then at the point in time that we made the sale. Now let’s let’s imagine a situation where we basically made a sale, let’s go back to the first tab, hold CTRL down, scroll down just a bit and say that if I hit the plus button, let’s, let’s say we made a sales receipt, we made a sale at the point in time that we got paid. And so let’s say this is customer to customer to this time, we’re going to save that.
And we’re going to say this happened on let’s say the fifth just to change things up. And this time, I’m going to say this is item number two that we’re going to say let’s make this an inventory item to add a little bit of complexity to it. inventory item. So we’ll say that there’s five on hand as of January 1, and it’ll add that description, sales price, let’s go to that 1000
Again, is our standard, go into the income and then the purchases same description item to cost. Let’s go to the 800 as has been our custom. Let’s save it and close it. And we’ll record this this is going to be increasing as the normal sales receipts increase in the undeposited funds 1080 Other side go into revenue 1000 Difference go into the payable of $80 for sales tax payable inventory going down by the 800 driven by the item cost of goods sold going up by 800 driven by the item.
Let’s save it and close it, save it and close it. Go back to the trial balance just to check that out. So that’s been recorded. holding control, scrolling up a bit. And then we can go in here and say, Okay, if I go into the the, not the receivable, not the receivable, it went into undeposited funds undeposited funds here. So that went up, as we can see, and then the other side went into the revenue account, down below revenue account went up by the 1000 difference went into the Board of Equalization, cost of goods 800,
inventory went down by the 800. So now let’s imagine they, they give it back. And basically they complain about our goods, say, we don’t want these, these are terrible, Give us our money back. And so now we can say, Okay, well, what are we going to do? We’re going to say, well, I don’t want to give them your money back. But maybe we’ll give you a credit against the future, we’ll give you a credit that you can apply out and into a future purchase, instead of us giving your money back like, oh, right, whatever.
So we’re going to now the options of the forms we can use is we could issue a credit memo, they don’t have any receivable now. But if I issue a credit memo, we’ll end up with a negative receivable, which will actually be on the books, or we could do a delayed credit, which would mean that we’re not actually going to reverse anything until the future when they actually purchase something. So again, the question is really going to be well, do I need to be recording something on the books right now? And if they’ve returned the inventory? You might think,
Well, yeah, I think I could should record it now. Because I kind of I’ve kind of committed to Oh, in something in the future, maybe I should have this negative receivable on the books that I owe in the future? Or is it something like, Well, I don’t really owe them, I haven’t committed to owe them anything in the future. I just said, I just committed to if they make a purchase in the future, to apply, not the credit, so I shouldn’t have anything on the books at this point in time. That’s kind of the question that you would have.
So let’s look at the two ways if I, if I entered the delayed credit, it would look like this, we’d say customer number two, customer number two, and we will then add, if I add, this is what the item item number two that we set up, I think it was right for the 1000. Now, if I did this, it would do the same thing we did before it wouldn’t record anything at this point of time.
And it would made that credit that we can apply out in the future. But when we apply off the credit in the future, because we added an inventory item, it would put the inventory basically back on the books in the future, and the other side would be going to cost of goods sold at that point in time. Which is kind of weird. You’d say I don’t I’m not sure if he got the inventory back, you would think you’d need to record it now. And if you’ve got the inventory back, you might be saying I should be I should be recording a negative receivable, possibly that something that that I owe in the future when they make a purchase?
So that’s though and then you have the same the same kind of scenario as well, with regards to if you’re reversing this, do you want it to be reversed to the returns and allowances account? Or do you want it to be reversed to the income account if you reverse this exactly. And you had an actual return, it would reverse basically to the to the sales account at the point of times you make the invoice.
So that’s one method you can use. Let’s do the let’s do the credit memo method. I’m going to close this back out and say do you want to leave without saving it? I’m going to say yes. And let’s do the credit memo out now this is again a you unusual situation for the credit memo because if I go to the flowchart, usually the credit memo happens here because we haven’t received the payment now we’ve did a sales receipt we already got paid when I create a credit memo then it’s going to reduce accounts receivable in this case create an
A credit that we can apply out to the future but it’ll actually show up on the books as a negative receivable that we can tie out. So if I go back on over and say okay, let’s let’s try the credit memo method. And say let’s say credit memo even though we already got paid for customer number two, and we’re gonna say okay, let’s say this happened on the sixth. And the product is going to be the the product is going to be the item item two, item two.
Now you got the same issues with the credit memo we talked about before in terms of Do you want it to go to here or sales returns and allowances I won’t get into that now but if you want to get into not having it record to the sales, a negative sales but rather go into sales returns allowances, take a look at the credit memo discussion right here we’ll just talk about it in terms of half the accounts receivable showing a negative amount in it at this point.
So there we have it, what’s this going to do? It’s going to reverse exactly what we had before except that we already got paid before. So we’ve got the 1080 Normally if we had an invoice this would be it would increase accounts receivable this would decrease accounts receivable but here we already got paid with the sales receipt. And then this is going to decrease accounts receivable resulting in a negative receivable for that particular customer.
And then we’re gonna have the sales, which are going to be reversed out of the $1,000, which is reversing it at this point in time, would we make the credit memo, so the sales went up with the sales receipt, it’s going to go down with this item, that would be different than if we if we had the credit in the future with the other form, that means it wouldn’t be recorded until they made the sale in the future.
In this case, it’s going to happen now, at this point in time, and then the difference is going to go to the sales tax, it went up with the sales receipt, it’s going to go down with a credit memo. And that is going to record a the Sales Receipt recorded an increase to inventory, this is going to decrease inventory, the sales receipt, increased cost of goods sold, this is going to decrease cost of goods sold.
So let’s save and close it and check it out. Save it and close it, check it out. Let’s go back to the first tab. And so now we’re going to save the credit memo if I go into the accounts receivable is actually recording the credit memo here. So now I see this negative amount. And that negative amount if I go back to the first tab, and go to the sales receipt, and I go into customer number two, it actually shows as the negative amount that is owed, there’s a balance in it.
So we’ve got the credit there as opposed to kind of a credit that we don’t really owe, unless we have the future invoice that will be made. So it’s actually on the books as a negative receivable. So and then I go back up,
and the other side is going to the sales. So if I go into the sales we’ve got then that’s the wrong sales back. If I go into the sales of product, which is now at zero, it went up with the in with the sales receipt down with the credit memo scrolling back on over back to our report. And then if we go into the liability for the payable, it went up with the sales receipt, and down with the credit memo.
And then if we look at the inventory, the inventory, it went up with the sales receipt, and then down with the credit memo. I’m sorry, it went down with the sales receipt and up with the credit memo, but they netted each other out, you know what I’m talking, you know what I’m getting at here. And then hold on a second. I lost my report, Trial Balance, Trial Balance, where did you go? Alright, that should be good. And then we’re going to go say cost of goods sold.
We had it goes up with the sales receipt down with the credit memo. Okay, so there we have it. And again, it’s showing on the report. So now if I go back on over, and I was to say, let’s hit another item. And let’s make an invoice now and say they purchased something else. So this is going to be customer, customer number two, customer number two. Now note that it doesn’t give us that nice pop up over here as it did before. But we still are able to say customer number two, and then tap through. And let’s say this happened on the seventh.
And we’ll say let’s say it was item item number two again, but let’s say that we sold three of them this time. So we’ve got the invoice and the credit, I’m not pulling it over because I don’t have that nice attachment. But I can then apply it out with the payment that with the payment item. And I can play out the credit to the invoice. So let’s go ahead and save it and close it and check that outsides say Save and Close, save and close.
And if I go back to the Detail, I’m in the sales area and the customer area and customer number two, then now we’ve got the invoice here and it says it’s been partially paid. So it’s been partially paid, because they applied out basically the credit to that to that item. So if I go into this invoice, for example, and I go back into the invoice, you can see then that they got the 3002 40 minus the 1080.
Meaning QuickBooks basically said I see the credit, I’m just going to automatically partially apply the payment over to that you can see the payment item. If they didn’t do that you can go into the payment item here. This is the payment form. And and then you could see what happens we went into the receive payment for customer number two, you’ve got an invoice and you’ve got the credits that were they’re both checked off. So they’re gonna net against each other.
So it’s a little bit it’s a little bit added of a step because you don’t get that pop up that automatically applies it over. But QuickBooks will still typically recognize it and if you create the invoice and then go back into the invoice, it will typically kind of make that make that happen automatically and then you can print the invoice that already has kind of the credit basically at the bottom or send it at that point in time.
So I think I would think if they were was like a return of merchandise or something between the two methods in that instance, that the credit memo might be better? And if if you have a credit memo, again, it’s recording on the books. And if there needs to be an adjustment at the end of the period to have that negative receivable go to a liability account, possibly, then you can make that adjustment.
But that’s the question. If you did it the other way, and you used a delayed credit, then what would happen is that same transaction would have been recorded as has happened with the credit memo, but it wouldn’t, you know, it wouldn’t do that reversing transaction in with regards to like the inventory account and the and the cost of goods sold until the invoice was put into place.
That would be the difference between those two methods in that instance. And then the the question would be once again, is it something that you should have basically on the books at the point in time, like the if they returned the inventory? Or is it something that you don’t need a liability for or negative receivable that you can then adjust to a liability as needed with an adjusting entry? And you just need to basically apply the credit and do that reversal at the point in time the invoice is made