QBO - Customer overpayments

R K · ‎November 12, 2024

I'm really having an issue regarding the proper way to handle customer overpayments. I have read the online directions on handling overpayments, credit memos, adding a service item, and unapplied payments. All seem to have different directions. I do not want the overpayment to occur in the "unapplied cash payment" account on the P&L.

To simplify: I have an invoice for $500.00, but the client's check shows an overpayment of $400.00.

1. The check is already in the bank but not matched.

2. If I receive the check for $900 and apply it to the invoice for $500. QBO will say that it automatically creates a credit of $400.00 for later use. When I return to the customer, the $400 appears under the last invoice, and there is an unapplied $400.00. Is this when the overage posts to an "unapplied cash payment" account? QBO does not automatically credit a Credit Memo. Is this when I create a CM using the service item code that links with A/R? How do I apply the unapplied amount to the CM w/o duplicating the credit?

Apparently, there are too many ways to handle overpayments, but not all of them are correct. I want to send a credit memo to the customer so he is aware of the CM of $400 on his account.

I can't believe that I struggle with this issue, but I do. Your guidance will really help.

RK

MariaSoledadG

I can see how you want to record these overpayments accurately. I'm here to help you with how you can handle this scenario and be able to answer all your questions according to how it is shown below, R.K.

Transactions will appear as unapplied cash payments when funds have been received but not yet allocated to any specific sales forms.

In QuickBooks Online, overpayments are recorded as credits in the Accounts Receivable (AR) account. To resolve your issue, create a bank account called "Clearing Account". To do so, follow the steps below:

Go to the Transactions tab, and choose Chart of accounts.
Select New.
Provide the name you want or call it a " Clearing Account ". Choose Bank under the Account type field.
Click Save.

Once done, set up a service item like " Customer Overpayment". Here's how:

Go to the Gear icon, and choose Product and services.
Select New and choose Service.
Provide the name of the product or use " Customer Overpayment " to locate it easily. Choose an income account under the Income account field.
Click Save and close.

Next, you'll need to record a journal entry. Follow the steps outlined below:"

Click + New.
Select Journal entry.
Debit A/R and select the customer. Then credit the created bank Clearing Account.
Click Save and close.

After that, go to the Receive payment window and select the customer's name. You should see the journal entry and the customer's overpayment listed. You can now apply the overpayment to the journal entry. See the steps below:

Click the + New.
Select Receive payment.
Click Save and close to apply the journal entry to Unapplied Payment.

Finally, create a credit memo and make sure to select the Customer Overpayment service item. Please know that credit memo isn't automatically created in QuickBooks.

For additional guidance on recording refunds in QBO and understanding how unapplied cash payments appear in QuickBooks, I've included these helpful articles:

Additionally, QBO offers a variety of reports that can help you access the data you need. Just remember to apply the appropriate filters to get the relevant information for your business: Customize Reports in QuickBooks Online.

Let me know if you have any other questions about your customer overpayments. We'll always be right here to help.

View solution in original post

FishingForAnswers

@R K "I do not want the overpayment to occur in the "unapplied cash payment" account on the P&L."

I admit, you've already lost me here.

@Rainflurry is knocking out a lot of good answers lately, though.

MariaSoledadG

I can see how you want to record these overpayments accurately. I'm here to help you with how you can handle this scenario and be able to answer all your questions according to how it is shown below, R.K.

Transactions will appear as unapplied cash payments when funds have been received but not yet allocated to any specific sales forms.

In QuickBooks Online, overpayments are recorded as credits in the Accounts Receivable (AR) account. To resolve your issue, create a bank account called "Clearing Account". To do so, follow the steps below:

Go to the Transactions tab, and choose Chart of accounts.
Select New.
Provide the name you want or call it a " Clearing Account ". Choose Bank under the Account type field.
Click Save.

Once done, set up a service item like " Customer Overpayment". Here's how:

Go to the Gear icon, and choose Product and services.
Select New and choose Service.
Provide the name of the product or use " Customer Overpayment " to locate it easily. Choose an income account under the Income account field.
Click Save and close.

Next, you'll need to record a journal entry. Follow the steps outlined below:"

Click + New.
Select Journal entry.
Debit A/R and select the customer. Then credit the created bank Clearing Account.
Click Save and close.

After that, go to the Receive payment window and select the customer's name. You should see the journal entry and the customer's overpayment listed. You can now apply the overpayment to the journal entry. See the steps below:

Click the + New.
Select Receive payment.
Click Save and close to apply the journal entry to Unapplied Payment.

Finally, create a credit memo and make sure to select the Customer Overpayment service item. Please know that credit memo isn't automatically created in QuickBooks.

For additional guidance on recording refunds in QBO and understanding how unapplied cash payments appear in QuickBooks, I've included these helpful articles:

Additionally, QBO offers a variety of reports that can help you access the data you need. Just remember to apply the appropriate filters to get the relevant information for your business: Customize Reports in QuickBooks Online.

Let me know if you have any other questions about your customer overpayments. We'll always be right here to help.

Rainflurry

@R K

"Is this when the overage posts to an "unapplied cash payment" account?"

The overage posts to the unapplied cash payment account as of the payment received date on cash basis.

The response provided by @MariaSoledadG is mostly correct but has some important details that were missed IMO.

1) Set up a bank account called Clearing Account in QB.

2) Set up a service item called 'Customer Overpayment' and select the newly-created bank Clearing Account under the income account drop-down menu.

3) Create an invoice (not a journal entry) and select the Customer Overpayment service item for $400.

4) Apply the existing $400 overpayment to the invoice created in step 3. This clears the existing overpayment.

5) Finally, issue a credit memo (CM) to your customer using the Customer Overpayment service item for $400. This zeros the balance in the Clearing Account.

There should be an easier way to do this in QB Online. In Desktop, when receiving the overpayment, you are asked how you want to handle the overpayment (issue a credit memo, issue a refund...)

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QBO - Customer overpayments