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Level 2

Resolving Gift Certificates as pre-payment, Credit Memos, and resulting Negative A/R

Hello all,


New to the forum(s) but not QB. Using the 2016 Mac Desktop version and hoping someone can provide guidance / assistance for a now lingering dilemma.


About us

1. We provide consulting services. No products.

2. We require 100% pre-payment  when they make their appointment, up to 3 months in advance.

2. We offer Gift Certificates for specific services.

– They hold no cash value, are non-refundable, and expire in one year (as permitted in our jurisdiction)


What we've been doing:


1. Client books appointment

We raise a Sales Receipt for a "Pre-Payment" item, tied to a liability account


2. Client has appointment

- We raise an invoice for the actual Service Item

- Reduce it by the pre-payment item/amount.

- Balance now = $0


Accounting is fine for this. No issues. Everything tracks.


Now when introducing a Gift Certificate:


1. Client purchases GC

- simple sale using Sales Receipt - tied to a liability account (GCs unredeemed)

All good.


2. Client (same or other) books appointment using GC

We raise a Credit Memo - and journal amount to a different liability account (GCs Pending)


We use separate Liability accts for ease of projecting breakage.


Problem - this event places A/R into the negative, as is the apparent default for using Credit memos

(Our A/R is rarely populated due to the pre-payment policy)


3. Client has appointment

- invoice raised

- payment reduced by GC

- balance = $0

- Credit memo (manually) VOIDED


This allows us to track the time of GC sale, time of Booking, time of Appointment, and assists in tracking referrals. It is exceptionally transparent and accurately reflects the financial state of the business.



I have read through many QB forum threads and many assert that a negative A/R is exactly correct. In fact, Credit memos must Dr A/R.


However, GAAP is clear that an Asset (which is where A/R falls on the balance sheet) is an asset. Something you have. You can not have a negative asset. GAAP is also clear that any and all outstanding financial obligations must be considered liabilities. Period.


QB Forum contributors also assert that journaling this to the "proper" liability account is deemed incorrect as that potentially bypasses sales taxes, along with other reporting requirements.


My takeaway to date has been that Accountants reject negative A/R situations, app developers etc seem fine with them, and average Joes/Janes are simply happy with a work-around.



I'm a fan of compliance, so ... any suggestions? Am I misguided as to policies, etc? Is there a better way to maintain our tracking system via-a-vis the use of Credit memos (which ultimately appears to be the problem)?


Many thanks.

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