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Ptonjalken
Level 3

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Hello everyone

My business issues invoices ahead of service, sometimes up to 3 months ahead of time. So sometimes I am paying my HST a quarter ahead of schedule.


This is no problem, but when a customer backs out I may have an invoice where I already paid HST but am no longer going to be getting paid. I will be going into my 2nd quarter now, Q1 was easy as I could just void it but now that I will be paying my Q1 HST I want to make sure I am dealing with dead invoices properly.

 

How do I account for this in the current quarter (Q2) and get my HST credit from the Q1 invoice to apply against the current quarter? I read a bit about credit memos but I can't seem to figure it out fully.

Thank you

Solved
Best answer 2 weeks ago

Best Answers
Leith
Level 2

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Hi Ptonjalken

 

Mostly, this has to do with your invoicing process and something called the matching principle.  Even if you send invoices ahead of time, that isn't counted as revenue until the work or related expenses occur.  Is there a reason to send out invoices so early?  Do you require deposits up front on work? (there is another, better way to handle this).

 

Now that you find your self in this situation, you'll need to void the invoice and related taxes.  As you've indicated, a credit memo is the best way to do this.  From the menu, click the +New button, and under the Customers column, select Credit Memo.  Enter the value of the original invoice, marking it appropriately for tax - inclusive or exclusive, and selecting the correct tax code.

Once you've saved your credit memo, you should see the taxes show up as a credit on your tax report.  Don't forget to mark the invoice 'paid' or settled against the credit memo.

From the menu pick Invoicing and Invoices find the invoice, and select Receive Payment and you should be able to allocate the invoice and credit memo against one another.

 

Hope this helps!

View solution in original post

LeithG
Level 7

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Ok, cool! So two different bits then:

 

1. Sending invoices early.

Regardless of when you send the invoice, the invoice date should be reflective of when you want to record the revenue.  For example, if you want to recognize the revenue in April, but are sending the invoice in March, be sure to set the invoice date in April.  Then, even if you send the invoice early, the revenue is still reflected in the correct period, and you can simply void the invoice using the credit memo as we've discussed if need be.

 

2. Deposits

Deposits can be a little funky in QuickBooks, but there is a right way to record them so that you do not charge (and owe) HST/PST/GST on them until they become recognized as revenue.

  • Under your Invoicing -> Products and Services, create a new item titled Deposit, and link this to a balance sheet account for pre-payments.  This will be a liability account showing that a customer has paid you for goods/services not yet delivered.
  • Create your invoice for the deposit using this new Deposit item, but do not charge tax (HST, GST, PST) and issue the invoice to your customer.
  • At the same time as creating the Deposit invoice, create a Delayed Credit Memo -- +New -> Customers -> Delayed Credit
  • This credit reflects the deposit your customer is expecting to make to come off of the later/final invoice.
  • When issuing the invoice for the final work, you include all services and items you're billing for, and attach any of the Delayed credits you've created.  This has the effect of the final invoice collecting all taxes related to the job, as well as adjusting the invoice appropriately for the deposits the customer has made.

 

Hope this helps!

View solution in original post

11 Comments
JamesM4
QuickBooks Team

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Hi Ptonjalken,

 

It's good that your business issues invoices ahead of time. I can see how important it is for you to account for this current quarter while adhering to the rules set by the Canada Revenue Agency. QuickBooks is a powerful program that makes it easy to put your financials into focus using our advanced features. 

 

Based on what you've described, it's important you're able to record your transactions the right way. I encourage you to reach out to an accounting professional for advice on how to best handle this situation. Doing this helps ensure your books are accurate. You can reach out to a QuickBooks certified accounting professional on our site using this link here. I'll also leave this question open in the Community so other members can chime in and share their advice. In the meantime, check out this helpful article with more info on how to: Create and apply credit memos or delayed credits in QuickBooks Online.

 

Feel free to ask questions below, I'm here to help.  

 

Leith
Level 2

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Hi Ptonjalken

 

Mostly, this has to do with your invoicing process and something called the matching principle.  Even if you send invoices ahead of time, that isn't counted as revenue until the work or related expenses occur.  Is there a reason to send out invoices so early?  Do you require deposits up front on work? (there is another, better way to handle this).

 

Now that you find your self in this situation, you'll need to void the invoice and related taxes.  As you've indicated, a credit memo is the best way to do this.  From the menu, click the +New button, and under the Customers column, select Credit Memo.  Enter the value of the original invoice, marking it appropriately for tax - inclusive or exclusive, and selecting the correct tax code.

Once you've saved your credit memo, you should see the taxes show up as a credit on your tax report.  Don't forget to mark the invoice 'paid' or settled against the credit memo.

From the menu pick Invoicing and Invoices find the invoice, and select Receive Payment and you should be able to allocate the invoice and credit memo against one another.

 

Hope this helps!

View solution in original post

Ptonjalken
Level 3

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Thank you this sounds easy enough

 

We do require deposits ahead of time, but I also like sending the invoice out ahead of time to allow people to pay by credit card on their own (and to remind them, I find quickbooks emails do not get junkmailed as easily as a regular email which is a huge plus to me). You mentioned an easier way to account for deposits? Would it still allow for credit card payments? Thanks for any insight here as well :)

LeithG
Level 7

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Ok, cool! So two different bits then:

 

1. Sending invoices early.

Regardless of when you send the invoice, the invoice date should be reflective of when you want to record the revenue.  For example, if you want to recognize the revenue in April, but are sending the invoice in March, be sure to set the invoice date in April.  Then, even if you send the invoice early, the revenue is still reflected in the correct period, and you can simply void the invoice using the credit memo as we've discussed if need be.

 

2. Deposits

Deposits can be a little funky in QuickBooks, but there is a right way to record them so that you do not charge (and owe) HST/PST/GST on them until they become recognized as revenue.

  • Under your Invoicing -> Products and Services, create a new item titled Deposit, and link this to a balance sheet account for pre-payments.  This will be a liability account showing that a customer has paid you for goods/services not yet delivered.
  • Create your invoice for the deposit using this new Deposit item, but do not charge tax (HST, GST, PST) and issue the invoice to your customer.
  • At the same time as creating the Deposit invoice, create a Delayed Credit Memo -- +New -> Customers -> Delayed Credit
  • This credit reflects the deposit your customer is expecting to make to come off of the later/final invoice.
  • When issuing the invoice for the final work, you include all services and items you're billing for, and attach any of the Delayed credits you've created.  This has the effect of the final invoice collecting all taxes related to the job, as well as adjusting the invoice appropriately for the deposits the customer has made.

 

Hope this helps!

View solution in original post

Tammy_H
QuickBooks Team

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Hi Ptonjalken,

 

I can see how being able to record deposits quickly would be handy to speed up your process. QuickBooks Online has a deposit feature for invoices that just needs to be turned on. You can go with what LeithG has suggested, or I can help you enable the deposit option on your invoices with a few simple steps.

 

To add the deposit box on your invoices:

  1. Click the Gear Icon on the upper righthand corner.
  2. Choose Account and Settings from the left column.
  3. From the choices on the left choose Sales
  4. Scroll down to the section that says Sales Form Content, click the Pencil Icon, or Edit
  5. You'll see Deposit, switch the toggle to On.
  6. Hit the Save button
  7. Finish by clicking Done

Once you've completed this you'll see a box on the bottom of your invoices that says deposit. You can input the deposit amount in the box and QuickBooks will create the entry into the liability account.

 

Depending on your QuickBooks Online subscription you may want to look at Creating Delayed Charge Invoices in QuickBooks; or Progress invoicing as invoicing options. These articles go into detail on how to use this type of invoice.

 

If you have any questions I'd be happy to help. Take Care.

 

Ptonjalken
Level 3

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Thank you this is the best answer i've gotten so far for any of my questions. Appreciate it.

Ptonjalken
Level 3

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Hi I just had one more question:

 

After they've paid the deposit, and then the work is done and I've reconciled their final invoice: What do I do with the deposit within my other liabilities account I made for this? Just delete it?

Thanks

LeithG
Level 7

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Hi Ptonjalken

 

The Delayed Credit also goes against the liability for the prepayment, so when you include it on the invoice it zeroes out the liability, and records it all as revenue at that point.

Ptonjalken
Level 3

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Great, so let me see if I have this correct:

 

1) Set up a deposit account under Current Liabilities called Deposits

2) Send customers an invoice with just the Deposit item, no HST, and have it linked to the account above

3) Also set up a Delayed Credit Memo of the same amount for that customer.

4) When service occurs send them the true invoice, dated properly, and then apply the delayed credit to the invoice and have them pay the remainder.


When I do it the first time I am sure it'll make it a little clearer; but when I apply the credit to the invoice how do I also zero out the deposit from in the liability account? (I am just confused on how the Delayed Credit and the Deposit in the Liability account are connected)

Again I really appreciate the clarity!

Ptonjalken
Level 3

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

(once I played around with Delayed Credit I see why it works that way, as you have to select the same item (Item being Deposit) and I am guessing it just applies it against the liability account itself)

 

Thanks again - let me know if I got anything else wrong :P

Tammy_H
QuickBooks Team

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

Hi Ptonjalken,

 

It's good to hear back from you. I'm glad you found the advice helpful.

 

Here's the clarification for Creating a Liability account and Product for Deposits you requested:

 

1) You set up a deposit account under Current Liabilities called Deposits, creating the Deposit Liability account is the first step.

2) If you haven't created the product item Deposit, this would be the next step.

3) Then you'd create and send the customer an invoice with just the Deposit item, no HST, and have it linked to the account above as you've mentioned.

4) Yes, you'll set up a Delayed Credit or Credit Memo of the same amount for that customer. 

5) You're correct, when service occurs you send them the true invoice, dated properly, and apply the delayed credit to the invoice and have them pay the remainder.

>When you create this invoice it lists the products/services you've provided. On the last line you'll include your Product Item-Deposit in the product/service field. You'll enter the Deposit amount as a negative to subtract it from the invoice. The deposit amount can't be greater than the invoice total. An invoice can have a zero total, but not a negative one.

>This decreases the liability account and applies the credit to your customer's invoice. It'll then recognize the income.

 

If you'd like more detail check out the articles I've shared above. They also explain the difference between delayed credit and credit memos and how to track the deposit amounts by customer. You should have all the information you need to accept deposits from your customers.

 

Thanks for reaching out with your questions. I'm here to help. I hope you're having a fabulous day!