We own a DJ company. We ask for a deposit sometimes over a year in advance to save a date. The person wants to see an outstanding balance but I don't want to pay the taxes for full amount when (and it has happened more times than I can count) the event gets cancelled and all we get to keep is the deposit. How do I process these transactions? I want them to see the full balance minus their deposit ....but not pay tax on the unpaid portion and not show it as an outstanding balance. Is there a way or does anyone have some advice on this?
If you've added them as customers and created an invoice, you can add two same items under the Product/Service column. Then, put a check mark on the Tax box of the first item to make it taxable, and leave the other un-checked.
Once done, create a Receive Payment and select the deposit you created. This process will show that the invoice is partially paid.
To provide information about their outstanding balance, you can print a statement by following these steps:
On the left panel, click Sales.
From the Customers page, check the box of the customer you want to create a statement.
Click the Batch Actions drop-down menu and select Create Statements.
You don't get to make this choice: "but I don't want to pay the taxes for full amount"
Because you follow the accounting requirements for this entity. If this is a cash basis entity, you just got Income. You handle that as a prepayment item on a sales receipt, and this Product/Service item is linked to an Income account. If you are an accrual basis entity and if you are allowed to carry this as Liability, you link it to Liability.
"when (and it has happened more times than I can count) the event gets cancelled"
Later, you would invoice for the actual sale. Then, you use that same prepayment item on a customer credit memo for the date of the invoice, and apply it. That means, if you were able to hold it as Liability, you just cleared the liability. For a Cash Basis entity, you basically discounted it 100% in consideration for the fact that you got paid previously and already had to declare it as income at the time you got paid, originally.
"and all we get to keep is the deposit."
Exactly; for a Cash Basis entity, there would be nothing to do in the condition of Cancel. You already got it, reported it as income, and you are done. For an Accrual Basis entity, you need to make an invoice for the amount prepaid using a Forfeit item, that is linked to Income. Make the Credit Memo with the prepayment item and apply them, to show what was on hand as Liability (not yours, yet) now is Yours, as income to keep.
It's best to meet with your own CPA to review appropriate accounting for Prepayment activities. Also, if that is subject to sales taxes or not. It would be taxable on the sales receipt and taxable credit memo (to reverse it). Or, Nontaxable on the sales receipt and Nontaxable on the credit memo (to reverse it).