Skip to main content

SUMMER SAVINGS 90% OFF QuickBooks for 3 months* Ends 8/27

Buy now
Switch to QuickBooks and 70% off for 3 Months
Talk to Sales: 877-683-3280
Hours
Mon - Fri, 5am - 6pm PST
Sat - Sun, 7am - 4pm PST
Product support & help
Need help signing in?
Anonymous
March 11, 2021
Question

Client Cancels Event, Forfeits Payment With Sales Tax

  • March 11, 2021
  • 6 replies
  • 45 views

I'm not quite sure how to properly due this, because if I change the invoice, it results in a negative sales tax balance.

Customer booked an event in 2019 or 2020. Made a non-refundable payment of 50% of the balance towards that event, which was counted as income and sales tax was report and paid to the state.

 

In 2021, they have cancelled their event. How do I close out the invoice, as it has a balance due? I can't just halve the amounts, as it changes the tax rate and how Quickbooks applies the payment. Every time I do that, it results in a difference between the Sales Tax Collected and Sales Tax Due on my Sales Tax Liability report.

6 replies

Catherine_B
Level 9
March 11, 2021

Hello there, TSPLLC.

 

For the customer's money, you can't collect, you can record it as a bad debt and write them off. First, you'll have to create a Bad Debt expense account. If you haven't created one, you can use these steps: 

 

  1. Go to the Lists menu and click Chart of Accounts.
  2. At the bottom, click Account and select New.
  3. Click Expense and then Continue.
  4. Enter a name something like Bad Debt.
  5. Click Save and Close.

Then let's close out the unpaid invoice. Here's how: 

 

  1. Click Customers and select Customer Center.
  2. Look for the customer and double-click on the invoice.
  3. Click Receive Payments from the Invoice window.
  4. Under the PAYMENT AMOUNT field, enter a $0.00. 
  5. Click Discounts and Credits.
  6. From the Discount tab, enter the amount to write off or the remaining amount on the invoice.
  7. Select the bad debt account you just created under the Discount Account.
  8. Click Done and then Save & Close.

For the paid sales tax, I'd suggest reaching out to an accountant on how you'll record the adjustment. For more details, you can see the process sales tax adjustment link.

 

You can also run reports that will help you get an overview of your account balances: Customize reports in QuickBooks Desktop.

 

Feel free to leave a reply below if you need more help. Take care!

Anonymous
March 11, 2021

So, I'm not sure if Bad Debt is right, as they don't owe us the balance due until four weeks prior to their event. Since they are cancelling five or more weeks from their event, they no longer have an obligation to pay the balance due by the due date and we no longer owe them the obligation of reserving a service to be provided at their event.

Does this help?

Catherine_B
Level 9
March 11, 2021

Good to hear back from you, TSPLLC.

 

Thanks for the clarification. You can apply a journal entry credit to the open invoice to zero out its balance instead of recording a bad debt. Let me show you how: 

 

  1. Click Company from the menu and select Make General Journal Entries. 
  2. Enter the affecting account on the first line and enter the balance amount on the Debit column.
  3. Select Accounts Receivable on the second line and enter the balance on the Credit field.
  4. The totals should be equal and then Save & Close.
  5. From the Customers menu, click Receive Payments.
  6. Select the customer's name and select the open invoice.
  7. click Discounts And Credits. 
  8. Select the journal entry you just created. 
  9. Click Done then Save & Close.

The customer's invoice balance is now zeroed out. You can use the Run Reports in QuickBooks Desktop article to get an overview of your customer transactions. 

 

I'd highly recommend reaching out to an accountant so they can help you identify the correct accounts affecting the journal entry. 

 

Let me know if you have other concerns. I'm just around the corner to help. Have a good one!

Anonymous
March 12, 2021

Unfortunately, I'm now getting more confused, as an accountant offline told me that since I am cash basis, I should be able to just reduce the rates on the invoice in half, and that will be just fine.

 

The problem is: this changes how Quickbooks applies the first payment when it was originally received a year ago. Which then throws my sales tax off on my Sales Tax Liability for the prior period, and of course, this period.

Need QuickBooks guidance?
Log in to access expert advice and community support instantly.
Terms & ConditionsAccessibility statement