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A
alchuikov
February 4, 2022
Question

bug in sales forms

  • February 4, 2022
  • 1 reply
  • 0 views

Hello,

Could anyone help me with the following issue?

 

We need to send advance payments (prepayment) invoices to our customers

The service ''Advance payment'' was created in Product&Services

Instead of Income Account - a Liability type of account was used for the Service called "Unearned revenue''.

When the Service  was used in our Advance payment invoice to Customer it created accounting records

Dr Accounts Receivable and Cr Unearned revenue

And it is totally fine.

We also tested Sales receipts (it created accounting records DR Checking account  Cr Unearned revenue)

 

 

The issue is that this invoice (or Sales Receipt) is displayed in ALL SALES REPORTS but it, is not a sale (income, revenue) it is just a prepayment from our customer, our LIABILITY

 

Moreover, the system displays it correctly in Profit and Loss  (NO income  and this is correct)  and in the Balance sheet (as short term liability  and it also correct)

 

So when you have a look at reports they don't match.

P&L income section does not match to Sales reports

 

Sales reports display Unearned revenue as  Sales  (and this  is NOT correct)

And Profit and loss displays NO Sales (and this is correct)

 

The same about using any other Quickbooks Sales forms with the Service.

 

(if we used Sales Receipt or Credit memo) the system displayed the transactions in the Sales report and it did not analyze that there are no  sales, revenue accounting records associated with the forms

 

The system just analyzed that the sales form had been used (invoice, sales receipt, credit memo) and automatically included the transaction in Sales reports

But what forms should be used to handle customers' advance payments correctly then?

They should not be displayed in Sales reports!

 

Right now I tested the following approaches

Only if we used Journal entry form 

Dr Accounts Receivable and Cr Unearned revenue then it was not displayed in Sales reports.

Because Jornal entry is not a Sales form

 

BUT this approach with Jornal entry also does not solve the issue 100%.

 

When we created an invoice for RENDERED services and would like to apply the advance payment to the invoice we had 2 options as Ituut usually advise.

1) Add the Service ''Advance payment'' with the negative amount to the invoice for Rendered services

OR

2) Create a credit memo with Service ''Advance payment' 'to the invoice.

 Let's assume our Advance payment 1 000 USD in Jan 2022 and our invoice for Rendered Services is 3 000 USD in Feb 2022)

 

1st error the system included 1 000 USD in Sales reports in January 2022

2nd error the system included the negative 1 000 USD in the Sales report in February 2022

And as a result, our Sales were  displayed as 

1000 USD in Jan 2022

and 2000 USD in Feb 2022

But they must be displayed only as  3000  in Feb 2022. Because we rendered the in February.

 

This bug is so obvious, and it violates all accounting procedures and standards.

 

So, to solve it we needed to create the Invoice for 3 000 USD in Feb and again create a reversed Jornal entry for 1000 USD

Only then system created accounting records

Dr Accounts receivable Cr Revenue  3000 USD and 

Dr Unearned revenue Cr Accounts receivable 1000 USD

 

And only then the Sales were displayed in Sales as 3000 USD as it should be

All other ways , when we used sales forms, displayed 1000 USD in January in Sales reports and 2000 USD in February in Sales report and IT is totally wrong!!!

 

Moreover, as you could notice from the example above we can not use the Invoice to send to our customer

The invoice should be for 3000 USD which is offset to 2000 USD in Feb 2022 (added a negative amount to the invoice or the credit  memo used) . Because then all this will be displayed in Sales. As 2000 USD in February

But  customer should pay only 2 000 in February. But our total Sales 3000 USD should be displayed in February. 

 

The unearned revenue should NOT be displayed in any Revenue/income/sales reports.

It is not SALES, revenue, income.

Called  QBO support yesterday and they promised to escalate the concern.

Because right now it does not work properly at all.

It is not some user's preferences or wishes. This is a system bug. When you include the Unearned revenue service to Sales forms then it is displayed in Sales reports without analyzing which accounting records associated with the sales forms (revenue or liability categories)

Again, what forms should be used then instead of Sales receipt or Invoices? 

Journal entries as was described above?

But where should we create customer invoices then? In Excel  :)

 

 

 

 

 

 

 

 

 

 

1 reply

M
MadelynCModerator
Moderator
February 4, 2022

Thanks for sharing your detailed concern in the Community, @alchuikov. I’m here to help and impart some information about handling advance payments in QuickBooks.

 

The sales form you used for advance payments is correct. However, QuickBooks Online offers a specific way to handle prepayments, so your reports are accurate and balanced.

 

You can set up a deposit or retainer. This option is treated as a liability to show that the amount you’re holding won’t belong to you until it's used to pay for services.

 

Before you create a retainer item, you need to make a liability account first to track the amount of the retainers you receive from your customers.

 

Here’s how:

 

  1. Go to the Gear icon, then select Chart of accounts.
  2. Press New.
  3. From the Account Type drop-down, select Other Current Liabilities.
  4. Choose Trust Accounts - Liabilities from the Detail Type drop-down menu.
  5. You can enter “Trust Liability” in the Name field.
  6. In the question, When do you want to start tracking your finances from the is an account in QuickBooks? Choose an option.
  7. Click Save and close.

 

Once done, you can now create an item in the program. I’m glad to show you the steps.

 

  1. Select the Gear icon, then go to Products and Services.
  2. Click New.
  3. From the Product/Service information panel, select Service.
  4. Enter a name (ex. Retainer).
  5. From the Income account drop-down menu, select Trust Liability account.
  6. Select Save and close.

 

For the rest of the steps, check out this article: Record a retainer or deposit. Just proceed to Step 3-6.

 

You can also read this reference for more information on how to handle advance payments: Accepting advance payments.

 

I’ve added this link that contains topics about managing payments: Process customer payments with QuickBooks. I'm sure you'll find it helpful.

 

Don’t hold back to drop a comment below if you have any other questions or concerns about sales forms and reports. I’ll be here. Have a good day and always take care!

A
alchuikovAuthor
February 4, 2022

MadelynC,

Thanks for your answer

But is it not related to the issue i described.

The issue is- 

 any of these Sales forms (invoice, sales receipt, credit memo) created in the system with the Services you described (with the liability type of account instead of income)  ARE included in all SALES reports.

 

It means that this Advance payment invoice (or retainer invoice) is displayed in Sales Reports (Sales by Customer, Sales by Location, etc)

And it is NOT correct.

Because the invoice is not related to revenue. Revenue for rendered services. It is just customer advance payment or Unearned revenue.

 

When this invoice is created the following accounting records are generated

 

Dr Accounts Receivable Cr Unearned revenue (Liability type) of account

 

So why the system includes the transaction which is not related to Sales (Revenue, Income) to Sales Reports?

 

Please note at the same time if you Run a Profit and Loss statement for the same period there won't be any Revenue in the statement.

 

And the transaction can be found only in Balance sheet.

And this is correct because A/R asset type and Unearned Revenue Liability type of accounts only categories associated with the transaction.

But why this is included in Sales reports then?? if there is not Revenue type on the transactions in the sales form?

 

 

Thanks for articles you provided but they don't answer the question i posted.

How to avoid the situation and  avoid including customer retainers invoices in Sales reports.

They just give the guide how to create the invoices and that is all.

 

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