Prepayment of services

first your contract with them should have stated that the deposit was forfeited if not used by 12/31

You received the money, you should have posted that to an unearned revenue liability account when received, then during the year you apply some portion of those funds to the invoice for your work each month.

if you will be getting a 1099 for the full amount, then obviously they think the money is spent, so yes the balance not used is income.

Now the question really is, how did you enter the funds received back at the start?

At the start, I entered an invoice for the full amount into QuickBooks and sent the invoice to the customer. Then, when they paid the invoice, I entered the payment by clicking on "Receive Payments" from the main screen in QuickBooks (desktop edition 2016).

if you file taxes on an accrual basis, the full amount was entered as income as of that date

If you file taxes on a cash basis then income is posted when you receive the funds

We received payment from a customer in July for 6 months of payments in advance, how do I show those prepayments and how would I apply them monthly in Quickbooks?

Hello @Mriddick,

Let me help share information about how you can enter prepayment or advance payment from your customers.

To start with, you'll have to create a liability account and an item to be used to track the advance payment you received. Let me show you how.

Creating a liability account:

1. Go to Lists.
2. Select Chart of Accounts.
3. Click New.
4. Under Type, select Other Current Liability.
5. Enter the name of your new account. Say Advance or Prepayment Deposits.
6. Click OK twice.

Creating a new item:

1. Go to Lists.
2. Select Item List.
3. Click New.
4. Under Type, select Service or Other Charge.
5. Enter the name of your new item. Say Advance or Prepayment Deposits.
6. On the Account menu, select the recently created liability account.
7. Click OK twice.

Once done, proceed with the remaining steps you need to take which are outlined in this article: Manage upfront deposits or retainers.

Additionally, I've also included this helpful article for the references you can use to help organize your customer transactions: Learn the different ways you can track customer transactions.

If you have any other questions, you can always leave them in the comments below. I'll be here to help. Stay safe!

Jonpril,

Do you have an article like the one referenced in your reply that applies to QBO?   This article is for desktop.

thank you

I’m here to guide you through how to manage upfront deposits in QuickBooks Online, @GSCI1644.

If you accept upfront deposits or retainers for products or services, there are several steps you need to take to account for that money. This is to make sure the company revenue will not be doubled.

You’ll want to ensure you’ve set up an account, item, and trust liability account. So when you charge a customer for the services you perform for them, you can turn the retainer or deposit you previously received into credit on an invoice and accept it as payment. You can follow these processes to handle this fund in QuickBooks Online:

1. Create a liability account to track the amount of the retainers you've received from your customers.
2. Make a retainer item.
3. Create a trust liability bank account. However, if you keep the money in your operating account, this procedure is unnecessary.
4. Create a transaction.
5. Turn retainers into credits on invoices.
6. Transfer funds from your trust liability account to your operating account.

 For detailed instructions and to be more familiar with managing retainers in QuickBooks Online (QBO): How to record a retainer or deposit. 

I've also included an article that'll help combine multiple transactions into a single record so QuickBooks matches real-life bank deposits: 

• Record and Make Bank Deposits
• Increase cash flow by getting Paid Upfront

 Additionally, I encourage you to pull up the Customer Balance Detail report. This makes sure you're able to monitor the payments you receive and the remaining balance that your customer has. Go to the Who owes you a section from the Reports menu's Standard tab.

In case you have other inquiries or concerns, let me know in the comments below. I’ll be around to back you up. Have a good one and keep safe, @GSCI1644.