Cash Basis Accounting - invoicing work spanning 2 fiscal years

I can help correct the advance payment of your customer in QBDT when you run the P&L report, @crhambrick.

It appears that you're accepting an upfront deposit or retainers for the job that spans two fiscal years. Since you've received payments for this job, you'll have to set up a liability account instead of directly creating a credit memo against the invoice. This is because upfront deposits are liabilities, not income, even though you deposit the money into your bank account. You can follow the initial steps I'll outline below

First, create a liability account if you haven't made one yet. 

1. From Transactions, select Chart of accounts (Take me there).
2. In the Chart of Accounts window, right-click and select New from the pop-up menu.
3. Select  Other Current Liability as the account Type.
4. Enter name for the account (for example, Upfront Deposit) in the Name field.

Please take note that you should set up the account with a zero opening balance unless you are tracking existing upfront deposits or retainers. Then click Ok to save.

Once done, create an upfront deposit item. 

1.  From the Lists menu, select Item List.
2. In the Item List window, right-click and select New from the pop-up menu.
3. From the Type drop-down menu, select the purpose of the deposits you collect.
4. You can select Service if you collect upfront deposits for services, or Other Charge if you collect upfront deposits for products.
5. Enter a name for the item (for example Upfront Deposit) in the Item Name/Number field.
6. Select the Upfront Deposit liability account you created from the Account drop-down list.
7. Select Ok.

For the rest of the process, you can refer to this article as a detailed guide: Manage upfront deposits or retainers. 

In addition, for future help, if you’ve ever found yourself sending the same reports on a daily, weekly, monthly or quarterly basis, you can set up Scheduled Reports to automate this task. 

If you have further questions about any QBDT-related concerns, you can comment below, and we'll respond to you as soon as possible.

I probably wasn't clear enough on my initial post.  The payments made on the unfinished invoice are for work completed so it's not really a deposit (aka liability).

I'm not necessarily against your method but wonder if it's the best.

@crhambrick 

Can you explain more about what you're trying to do?  You're on cash basis so you need to recognize the income in Year 1 when the payment is received.  The remainder of the project income/revenue is recognized in Year 2 when the payment is received.  What are you hoping to accomplish with the credit memo in Year 2?  

The credit memo in year 2 was to offset the fake invoice I created in year 1.

EXAMPLE

So project starts in December of 2023.  I collect $20,000 and we get started.

I create a fake invoice with one generic line item for $20,000 in 2022 and apply the payment to realize that income.

January 2024 I finish the job and collect remaining balance and sales tax--$15,000.

I finalize the 2024 invoice of $35,000 with all the specific line items and apply the $15,000 payment.

I still have $20,000 on the invoice that I have to deal with that of course cannot be considered 2024 revenue.

If I do a 2024 credit memo for the $20,000 to offset the 2023 fake invoice it shows up as NEGATIVE revenue in 2024.

@crhambrick 

"I still have $20,000 on the invoice that I have to deal with that of course cannot be considered 2024 revenue."

Why do still have to deal with that invoice?  The 2023 invoice is not a fake invoice, it's how you booked the income when the payment was received.  When you create the 2024 invoice for $35K, just add a line item with a service item called "Project Deposit" (or something similar) mapped to the same income account as the 2023 invoice and add it to the invoice as -$20,000.  That will keep 2023 income at $20K and 2024 income at $15K when the payment is received which is what you want on cash basis.  A credit memo works too, it's just that it will reduce income as of the credit memo date on accrual basis (but you're not on accrual basis).  On cash basis, it will work the same as creating the "Project Deposit" service item and adding it to the 2024 invoice as a negative amount.    

Guess my reply never made it through.

The 2023 really is a fake invoice because it doesn't have all of the line items and sales tax.

...however I did try out your method by just adding a negative line item on the 2024 invoice and it still affected my revenue and P&L.

So at this point I'll just have to get an accountant involved and get er done.

@crhambrick 

"...however I did try out your method by just adding a negative line item on the 2024 invoice and it still affected my revenue and P&L"

It should affect your 2024 invoice correctly.  If you want a final project invoice for your customer to be $35K and that shows the $20K payment made in 2023 as a reduction in the amount due, than you need that negative line item to reduce the invoice (and your income) from $35K to $15K.  Yes, the $20K will show as negative revenue in 2024, but it will be offset by the $35K in revenue from the final invoice, thereby booking $15K in revenue in 2024 which is what you want.  You're cash basis so there's no getting around that unless you use modified cash basis for your books and your CPA/tax accountant makes the adjustment on the business return.