When the client writes a check, use Receive Payment (New > Receive Payment) and deposit it to the trust account. That deposits the cash into your trust account and creates a credit for your client. In QBO, that credit is recorded as a reduction (credit) to A/R. That credit can now be applied to a future invoice. When you want to refund the remainder to your client, write a check and assign A/R to the check. Then, go to Receive Payments and apply the remaining credit to the refund check. If you fail to do the last step, both the remaining credit and the check will show up on your aging A/R reports.
However, our clients NEVER write us a check. WE send them a payment. I recorded the gross recovery we received on behalf of our client as a trust liability. I think I'm going to just have to write checks to the clients and use a tag to identify it. I can't use an invoice or a bill and it is not an expense, nor is it income and definitely not a/r.
Of course, I understand the client's gross payment is not A/R, it is a liability. However, you asked how to record this type of transaction in QB and that's what I'm explaining. In order for you to have a credit available to be applied to a client invoice for your legal services, it must be recorded as a credit to A/R, not a liability. That is a shortcoming of QBO. You can JE the A/R credit to a trust liability account when preparing your financial statements as necessary. That keeps the gross payment off your P&L until you create the invoice for your legal fees, at which point, your legal fees are booked as income (when paid if your firm is cash basis) and the A/R (liability) credit is reduced by a corresponding amount. Then, you can issue payment for the net. The net payment will zero the credit to A/R (liability). The inability to record client prepayments to a liability account and have that show as a credit in their customer profile is a feature that has been lacking in QBO for a long time.
Thank you. To be completely frank with you - that is way above my paygrade. Thank you very much for the reply, I really appreciate it. And while it clears it up for me a bit, I just don't understand it. I'm either going to need to find a bookkeeper, or I have to take a lot of bookkeeping courses!!!
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