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Level 1

Long Term Accounts Receivable

I have a client who when he makes a sale on a particular product, he receives a commission on the 1st anniversary and again on the 2nd anniversary.  He usually creates an invoice for the anticipated commission and then receives a partial payment a year later and another 2 years after initial invoice. I believe these should be considered long-term receivables.  Is an invoice the best way to track these?  He wants to do cash flow projections, but these receivables show up, but he knows he won't receive them for a long time.

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Anonymous
Not applicable

Long Term Accounts Receivable

I cant tell for sure - but I suspect that the monies he expects to receive in yr 2 & 3 may not count as current revenue - and if not then no receivable would be recorded initially.

If there is a recognizable sale with multiyear payment terms, then the future portions would probably be some type of 'other asset' - rather than current.

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Level 3

Long Term Accounts Receivable

Right, a long-term accounts receivable would be an "other asset".  This is why I'm leaning towards having him create journal entries for the amounts expected beyond the current year.  I'm wondering if anyone else has this situation and how they handle it?

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Level 3

Long Term Accounts Receivable

 
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Level 15

Long Term Accounts Receivable

You don't use JE for this: "This is why I'm leaning towards having him create journal entries for the amounts expected beyond the current year."

 

You avoid JE for anything with Names; for AR, AP, QB sales, Sales taxes, QB Inventory and QB payroll.

 

You already have the AR for the initial Charge. You would either break it into separate invoices, the same as if you are given a 3-year grant = 3 annual invoices. Or, the one invoice has a Terms or due date out to the 3rd year, so that it doesn't age. If this is a Cash Basis entity, the one invoice isn't income until payments are applied, and that is for the date of the payment, not the date or amount on the invoice. And a cash basis entity really doesn't have Deferred Revenue, anyway.

 

If you really want to Move it, you do something similar to how you treat Customer AR turned over to a collections agency: Make an Other Charge type item linked to an Other Asset account and use that on a customer credit memo to apply to the Invoice. Now you Cleared regular AR and parked the value in Other Asset.

 

Then, as they pay, you would use that same Other Asset item on a Sales Receipt. Or, you put it on the invoice for each of the next years you intend to show you anticipate that payment and need to track its Due date. Each time you use the Other Asset item, you are Clearing that balance for that customer name in that account.

 

And you Reconcile that other asset account, always using only an ending balance of 0, because you make and use a custom report filtered on that account set to total by name. You only clear all activity for a name when you see that name is now at 0.

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Level 3

Long Term Accounts Receivable

Thank you, qbteachmt!

He is also running cash flow projections 4-6 weeks out in desktop.  Will having extended due dates on the invoices keep those from showing up on the projection report?

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