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Senior Explorer ***

Recording an upfront deposit without having an invoice to apply it to yet.

We receive money for services but we work off of advance payments.  There is no invoice filled out yet.  Quite often, the invoice that is created is not as much as the deposit so the remaining monies goes towards the next invoice.  This happens because the services being performed usually takes about 3 years to complete.  The cheques received are always for $2500 - $5000 a month.  I'm always so confused in QB as to how to record these deposits properly and have them linked to the invoices once the invoices are created.  I hope you understand.

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Best answer 03-11-2019

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Established Community Backer ***

It isn't that basic. First, using Receive Payment with no...

It isn't that basic. First, using Receive Payment with no charges applied creates Uncategorized Income on Cash Basis reporting and Negative AR on Accrual Basis reporting.

Negative AR = Backwards. That really is a Liability. However, if you are a cash basis reporting entity, you are not allowed to carry this as Liability or Negative AR. You have to carry it as Income.

So, you use an Other Charge Item on a Sales receipt when you first get the funds. That item is linked to Income or the Liability, as required for your accounting needs. You never want Negative AR and avoid using Receive Payment when there are no open Charges.

You invoice for the work as if they are going to pay you.

You use the same Prepayment Item on a Credit memo for the date of the invoice, to apply it to the real charges, and "use up" the prepayment.

You will need to run reports to manage Prepayment and avoid over-crediting.

There are some good help topics. Here:

https://community.intuit.com/articles/1020840-handle-upfront-deposits-or-retainers

Ask you Accountant about your Requirements as Cash or Accrual.

This assumes you are not responsible for Trust Accounting. Trust Liability accounting is handled a bit differently.


5 Comments
Established Community Backer ***

It isn't that basic. First, using Receive Payment with no...

It isn't that basic. First, using Receive Payment with no charges applied creates Uncategorized Income on Cash Basis reporting and Negative AR on Accrual Basis reporting.

Negative AR = Backwards. That really is a Liability. However, if you are a cash basis reporting entity, you are not allowed to carry this as Liability or Negative AR. You have to carry it as Income.

So, you use an Other Charge Item on a Sales receipt when you first get the funds. That item is linked to Income or the Liability, as required for your accounting needs. You never want Negative AR and avoid using Receive Payment when there are no open Charges.

You invoice for the work as if they are going to pay you.

You use the same Prepayment Item on a Credit memo for the date of the invoice, to apply it to the real charges, and "use up" the prepayment.

You will need to run reports to manage Prepayment and avoid over-crediting.

There are some good help topics. Here:

https://community.intuit.com/articles/1020840-handle-upfront-deposits-or-retainers

Ask you Accountant about your Requirements as Cash or Accrual.

This assumes you are not responsible for Trust Accounting. Trust Liability accounting is handled a bit differently.


Community Contributor **

Enter Receive Payment, apply it to any existing unpaid in...

Enter Receive Payment, apply it to any existing unpaid invoices as appropriate.  QB will ask you what you want to do with any unapplied amount - choose "Leave the credit to be used later".

After you create a new invoice for the same customer, go again to Receive Payment.  Enter the payment amount.  If you have selected the Preference - Payments to "Automatically apply payments", QB will usually apply it to the oldest invoice first, then the next, etc.  Again there may be an unapplied amount.  You can change the way the payment is applied by "de-selecting" (click to clear the checkmark) an invoice and selecting a different invoice, and/or by changing the amount in the Payment column.

If you do not apply payments automatically, then click to select an invoice (anywhere on the invoice line but NOT in the checkmark column), then click Discounts and Credits in the icons at the top of the Payment window.

Senior Explorer ***

Thank you.  I have another question.  I understand that m...

Thank you.  I have another question.  I understand that money sitting in credit will be applied to the next invoice that is already created, but if there is no invoice yet and then I create one while there is money sitting in credit, does that credit automatically get applied?  (if I have "Automatically apply payment" selected)   I usually have monies sitting in the credit before invoices are created.  Most of the time I end up having customer payments sitting in the their account and I have unpaid invoices that were created after the deposit.
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Community Contributor **

No, an existing credit will not be automatically applied,...

No, an existing credit will not be automatically applied, you must open 'Receive payment' then select an invoice (NOT with the checkmark), then 'Discounts and credits'. 'Apply automatcally' only works for new payments to existing invoices.
Senior Explorer ***

Re: It isn't that basic. First, using Receive Payment with no...

Do you charge HST on a deposit?  I've researched it here on this site and read that you do not.  My boss insists that I do.  Will that mess things up?