Proper setup and recording of a prepayment and creation of a number credit memo

I appreciate you for sharing the details you’ve done, @T4KB. I’m here to share some ways on how to record your customer deposits/prepayments in QuickBooks Desktop (QBDT).

You’re right with setting up and using an item which has a liability account on it to hold customer deposits. Yes, it’s also a liability since you received the prepayment before providing the services. This way, although your business is holding the deposits, no sales income is posted until it’s applied.

To clarify, when you opened the liability account you’ve created, do you only see A/R? With this, let’s make sure you’ve set them up correctly, as well as the Receive payment. 

Once done, let’s record the upfront deposits you received from your customer. I’ll show you how:

1. From the Customers menu, select Enter Sales Receipts.
2. From the Customer:Job drop-down list, select the customer or job.
3. If the Deposit To field appears, select the account into which to deposit the funds.
   If this field does not appear, the funds are identified as Undeposited Funds and can be deposited at a later point.
4. Select the Payment method.
5. Enter relevant information, such as the Date and Sale No, in the appropriate fields.
6. In the Detail section, select the Upfront Deposit item you created from the Item drop-down list.
7. In the Amount field, enter the amount of the deposit or retainer.
8. Select Save and close.

There are several steps you’ll need to take to account these prepayments, you’ll want to visit this article for the detailed process: Manage upfront deposits or retainers.

You'll have to manually enter a credit memo number if needed. If you’d like the system to automatically follow the numbering on your next entry, you can use CN on the credit notes. Once you're done recording your retainer/deposit in QuickBooks, you can directly pay them using your account where the retainer amount was deposited.

Let me also share this article that you can use for reference in reconciling your accounts in the future: Reconcile an account in QuickBooks Desktop. This link can walk you through the steps in accurately matching your accounts in QBDT.

If you any other follow-up questions about recording prepayments in QBDT, feel free to post a reply in this thread. I’d be more than happy to help you out. Keep safe.

Thank you for your response, JamaicaA

So I used your instructions and created a Sales Receipt This is where I was stuck as it wasn't making sense to me as they were just giving me a check I wasn't selling them anything.

I'm not sure I understand these two comments: 

If you’d like the system to automatically follow the numbering on your next entry, you can use CN on the credit notes. What is CN and what are credit notes?

Once you're done recording your retainer/deposit in QuickBooks, you can directly pay them using your account where the retainer amount was deposited. Who would I be paying directly?

Furthermore, once I completed a Sales Receipt I attempted to create an invoice and apply the credit as I would be in the future to move the money from Liability to Asset but no credit appears for this customer. How do I apply the credit?

Hello, T4KB.

Thanks for getting back to us. I'll clarify something about my colleague's response above and help you take care of the remaining entries for the prepayment proecss. 

In regards to the two comments, my colleague is likely referring to the credit note format numbering. The credit note is the same as a credit memo (other QuickBooks versions use credit note instead of credit memo). 

To clarify on the payment thing, we would issue a payment to the owners if and only if we're returning the securities back to them. 

Now, let's clear up some things and ensure we'll be able to record the sales receipt for the prepayments and issue a credit memo to the owners. 

I see that you've already created the liability account, processed a sales receipt, then created an invoice. This flow is correct, so let's tackle the credit issue. 

In relation to the clarifications above, we would want to create a credit memo and retain it until we're ready to apply it to the invoice. Here's how to do it: 

1. From the Customers menu, select Create Credit Memos/Refunds.
2. From the Customer:Job drop-down list, select the owner's customer account. 
3. Under the ITEM column, select the liability item you created and associated with the sales receipt. 
4. In the Amount field, enter the amount.
5. Select Save & Close to retain it. 

This will create an open credit under the customer or owner's profile. On the Chart of Accounts, this will reduce the liability account's balance. 

When we're ready to apply it to the invoice, we'll want to open the credit memo transaction again. Here are the full steps: 

1. Open the credit memo.
2. Click the Use credit to apply to invoice button.
3. Check the invoice, then hit Done. 

This will close out the invoice (if the credit amount is the same as the invoice amount) or partially mark it as a paid. 

If you need to pull up some reports to see the transactions made, we can take a look this article as a guide: Understand reports.

Do you need to record other entries for your HOA business or would you like some assistance in managing your data? Let me know and I'll help you out again.

PLEASE, PLEASE PLEASE Quickbooks - we need a better way.   Your method of creating a credit memo will require 100-150 MANUAL transactions for me per month which defeats the 'automated process' and will create a ton of extra manual data entry.

Please find a better way for us to automate the process of matching customer prepayments to invoices ('receive. payment' is not an option for me - my sales and customer pre-payments are imported from square thus creating sales receipts only.  

Hello there, Archery.

I understand how convenient and advantageous it is to have a better way of recording your customers' prepayments in QuickBooks Desktop (QBDT). However, it is how prepayments are processed in QuickBooks.

We'd love to hear your inputs. I recommend leaving feedback to notify our engineers about the feature you need. This way, they can consider adding it in future updates.

To send your input, here's how: 
 

1. Go to the Help menu and select Send Feedback Online.
2. Click Product Suggestion.
3. Choose a feedback type and product area on the QuickBooks Feedback window.
4. Enter your suggestion or feedback, name, and email address (optional).
5. Select Send Feedback Online.

Additionally, I'll also share this link where you can search for articles that can guide you to manage your QBDT file: QuickBooks Desktop Help Articles.

Feel free to leave a reply if you have additional QuickBooks-related queries. The Community team always has your back. Keep safe.