Is there a way to record revenue based on the service date? I am invoicing customers in advance of when the service is actually provided.

Hi kfontaine,

This is a great question. Making sure your books are tracking the way you'd like them will ensure that you have a solid understanding of where your business financials stand so you can plan and move forward with your work. I'd be happy to go over how QuickBooks Online works with revenue recorded from your sales entries.

To match accounting standards, QuickBooks Online includes two accounting methods: cash and accrual. Cash-based accounting means that the program displays information in reports based on whether the funds have actually be received and accounted for in your books. Accrual-based accounting takes into consideration funds that you still have yet to receive in your reporting. It doesn't doesn't add the funds to your bank accounts for you or anything like that, but rather gives a sort of projection of how things are faring with pending sales and expenses.

With what you've mentioned, it sounds to me like you've created an invoice for the customer, but don't want to see the revenue from it until the payment is actually received on the service date. Cash accounting would benefit you here, and here's how you can change your accounting method in QuickBooks Online.

1. Select the Gear icon.
2. Choose Account and settings.
3. Click the Advanced tab.
4. Click the Accounting section.
5. Choose Cash from the Accounting method drop-down menu.
6. Click Save.

This will change the settings for your books overall. If you're simply looking to see the change on singular reports, you can change the accounting method on a report without changing the method for the account overall. When you run a report, choose from the Accounting method toggles at the top and select Run report. Here's a more in-depth look at report customization options if you're interested: Customize reports in QuickBooks Online

If you don't already have it configured, you can turn on the Service date field on sales forms while you're in the Account and settings area. In that part of your books, click Sales, then the Sales form content section to see where you can toggle that option. Click Save to complete the change.

I hope this helps! If that's not quite what you're looking for, let me know in a reply. I want to make sure you're good to go.

It would be good to note here that the the only businesses in Canada allowed to use the Cash Method of accounting are Farmers, Fishermen, and Self-Employed Commission Agents.

From CRA:

Generally, you have to report business income using the accrual method of accounting. Farmers, fishers, and self-employed commission agents can use the cash method or the accrual method to report income, but not a combination of both.

The accrual method

Under the accrual method, you have to report income in the fiscal period you earn it, no matter when you receive it.  You can deduct allowable expenses in the fiscal period you incur them, whether or not you pay for them in that period. Incur usually means you paid or will have to pay the expense.

The cash method

If you use the cash method, you report income in the fiscal period you receive it whether it is in cash, property, or services. You deduct allowable expenses in the fiscal period you pay them, except prepaid expenses. If you are a farmer, fisher, or self-employed commissioned sales agent, you can use the cash method.

This info is all found in the following CRA web link:  https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-incom...

This clearly states that unless you fall under the three categories that allow the cash method, you must use the accrual method, which means recording the sale or the expense in the period in which it occurred, regardless of when you get paid or when you pay the bill.  Accounts Payable and Accounts Receivable must be a part of your bookkeeping.  This is based on the accounting theory (both GAAP and IFRS) of the matching principle; income and related expenses should be recorded in the same period.

Thanks for sharing those insights, @Rochelley! Your accounting perspective on these issues is much appreciated and helps complete the picture. :)

It never hurts to check in with an accountant to make sure you're taking the correct steps for your books and meeting reporting requirements to the government. @kfontaine, I overlooked including this in my original response, but QuickBooks Online can help facilitate a connection with an accountant if you're interested in that. Using the My Accountant tab in the program, you can invite your accountant as a user by email or select the Find a pro to help button to see a list of QuickBooks-certified professionals near you.

Hello Laura,

Thank you for your response. I do understand the difference between the cash and accrual basis of accounting. However, this is not the issue I'm having. I have customers that are paying in advance and so the service date is in the future even though the invoice and payment are happening now. Because this revenue has not yet been earned it should not be recognized until the date of service (the date it it earned). Is there a way to do this in QBOL?

Thank you,

Kristen

Thanks for that clarification, Kristen. If I'm following correctly you have an invoice that was already given to the customer and they've given you the funds, however you don't want to record the payment because it will show as being paid in your books now rather than reflecting on income in a future period, is that right? If so, what you could consider is holding off on recording the invoice payment part of the transaction until the service is rendered or future date the invoice payment when you record it. 

It also sounds like the sort of advance you're talking about could potentially be considered a retainer, depending on your situation. If that's the case, I recommend taking a look at the following article to learn more about how to do that in QuickBooks Online: Record a retainer or deposit

If those aren't quite it, the next best thing is going to be working with an accountant to see about coming up with some other way to record this. When you record invoice payments using the Receive payment feature, they'll reflect for the date chosen on the payment. There may some accountant maneuvering that can be done to achieve what you're looking for.

Thank you Laura.

Hello @kfontaine ,

Sorry about the long-winded Cash vs Accrual method; I was looking at the first response to your question rather than your actual question.

Here is a post I just made this morning about recording a deposit against a future sale using an invoice:

Hello @maxcharron ,

Please see an older post here in which I describe in detail the correct way to handle a customer deposit.  There are other things that I pointed out that were a response to the OP in that thread and which may not apply directly to you, but the basic principles of the deposit and how to record it are the same.

https://quickbooks.intuit.com/learn-support/en-ca/sales-customers/invoices-to-be-billed-at-later-dat...

Good luck!

I have a golf cart rental business and I collect the rental fees in advance of the actual service date.  If the client reserves a golf cart in March and pays the Sales Receipt in full, but the rental (service date) is not until May, how can I record May as the month for rental income?  Or at least show on an income report based on the service date, not the date the invoice or sales receipt was paid in full?

This is important because the expense of the rental will occur in May.  A good example would be commissions paid to the property manager that referred the client.would be payable the month of the actual rental (service date), not the date of the paid sales invoice.

Not sure this is possible.

Thanks!!

Hello PCR-CR. I appreciate you posting on this thread. Making sure you're recording the transactions the right way is a good exercise for preventing errors in your books. I recommend contacting an accounting professional to get more info on this. If you're not in contact with one, I encourage you to search for one on our website using this link here. Doing this will help prevent any future discrepancies. Let me know if you have other questions. I'm here to help. 

Hello @PCR-CR ,

Please click on the link my post directly above yours and I have outlined how to accomplish what you are asking for.  It is entirely possible, and should be done in the way you suggest in order to record your sale in the proper month.  If you have any other questions, please don't hesitate to reach out to me.

Cheers :)

Thank you for the insight!!

Ok, forget normal accounting principles.  This is the real world!!  If my clients rent a golf cart for May but pay for the rental in March, then I can create the invoice  in May but accept the payment for the sales invoice in March.  Therefore it will create a negative in my A/R in March but will balance out in May on my balance sheet.  Then I can post my expenses to the correct month.  The only issue I can see is when the payment occurs in one year and the rental is the next year.  Is my logic correct?  Isn't that a lot less complicated than what you suggested?  Looking for suggestions!!

Hi there PCR-CR,

Making sure that your client payments and invoices are created correctly is important to have your books be balanced. When it comes to knowing what to do with unapplied payments at the end of the year, I recommend reaching out to your accountant. Their accounting knowledge will be able to tell you in which account the money should be located at the end of the year to make sure your books are in order. If you have any other questions, feel free to post them here.

Thank you for the advice.  Yes, there can be a simple Journal Entry at the end of the year and post the pre-payments to a liability account.  

But in the end I think that my idea is best for what I need to get accomplished.  

I appreciate everybody's input and advice!!

Pura Vida!!

Hello @PCR-CR ,

What I suggested isn't complicated at all.  It simply requires about two minutes worth of setting up a liability account to record your deposits in and an expense item that is linked to that liability account.  It also was in reference to someone whose customer insisted on getting an invoice for their "deposit".  This is the simplest way to do that to satisfy the customer's need/desire for paperwork and not post to the sale at that time but rather to a liability account which will be reversed when you create the sales invoice.  It may look complicated only to the extent that I am very detailed in my instructions for people who literally don't know anything about accounting at all.

Creating an invoice as above just creates a better trail to follow.  But of course, you can make a negative accounts receivable by "receiving" a payment from a customer and let it sit as an "unapplied credit" until such time as you write the invoice.  It accomplishes the same thing but creates a negative receivable rather than a positive liability.  Six of one, half-dozen of the other.  That is fine to do if you only have a small gap between advance payment and when the services are used.  The problem comes in when you cross over a year-end.  Most external accountants and CRA do not want to see negative receivables.  They want to see an accurate version of what that advance payment means . . . that it is a Customer Deposit paid on goods where the sale has not been realized yet, and is a liability to your business which is clearly stated on the Balance Sheet.

You can do as you like all year long by receiving payment to the customer with no invoice and then applying that credit to the invoice you create at a later date.  However, if you have a few of those to go over year-end, then you should create an adjusting entry at year-end to debit the A/R and credit the Customer Deposit Liability.  You can reverse the entry immediately afterwards on Jan 1, and go back to the "simplified" way you'd like to do it for the rest of the year.  However, if you know how QB treats A/R and A/P transactions inside of JE's, the adjusting JE is a pain because you can only have one line in a JE that is A/R or A/P connected to one name.  That would mean that you would have to make a JE for every outstanding deposit you have . . . one per customer to ensure that the A/R subledger is posting accurately to each affected customer.  For this reason, I go back to my initial recommendation which is to:

1.  Create a liability account named Customer Deposits or similar.

2.  Create a Customer Deposit item that can be used on Sales Documents (Invoice, Credit Memo, etc.) and ensure it is linked to the Customer Deposits liablity account.

3.  When your customer pays the deposit, create an invoice for that customer for the amount of the deposit using the Customer Deposit item you created earlier.  There is no sale and no tax implication whatsoever because you are effectively posting to the Customer Deposits liability account.

4.  When your customer uses your services, create a regular sales invoice using a sales item code you have set up to post to your G/L sales account(s).

5.  Then enter a negative line using the Customer Deposit item in the amount of the deposit that they paid.  If they've paid the full amount up front, this will be a $0.00 invoice.  If they've paid less than the total owing, there will be a balance owing which is then due and payable.  If you know already that they have overpaid the final amount, then the final "invoice" will have to be a credit memo.  Your invoice amount would be a negative, your customer deposit line a positive.  Resulting amount of credit memo would be owing back to the customer.

I promise you it is very simple and doesn't take long at all.

Best of luck.

Thanks for helping out @Rochelley .

Hello @Alex M ,

Glad to help.

Cheers :)