I have been using QB for some time now, but have a question about how best to handle this. I have a client that is switching to QB mid-year. Earlier in the year they received deposits from several clients totaling a little over $500,000. I have posted those payments to a liability account since the work has not begun on the projects yet, but I am not sure where to put the money since it will mess up my beginning balances/reports to post it to the bank account. It is currently sitting in undeposited funds. Any ideas?
Yeah. My problem is (and these clients are in financial trouble) that they took in $500,000 in deposits between last year and part of this year but only have $100,000 in the bank. So, it hit the bank but then was spent before the books were started. So, I need to account for the deposits because they HAVE received the money AND deposited but have spent it. It's a mess!
What you described, though, is that the data hasn't been tracked Properly, in Gross (as Full amounts) and the same as in reality.
You would make an Other Charge Type item. It links to Income for a Cash Basis entity; it links to Liability for an accrual entity or one allowed to carry liability. You use that on a Customer Transaction = Sales Receipt, when you get the funds.
For applying that prepayment later, you have the actual Gross Sales as an invoice. You will put that same prepayment item on a Credit Memo for that same date or later, and Apply to the invoice.
This tax paying entity either Never entered that this is income for them (cash basis reporting). Or, you don't have the ability to put it "to bank" as happened in reality, because you don't know what happened to it? They could not have entered the Business Expenditures, against the $400,000 that is missing, obviously. That means you are overlooking what happened to the funds. That is supposed to be part of the bookkeeping. It isn't just the Banking that is a problem with, "What to do with $500,000" because you need to talk to them and find out what happened, and then do the bookkeeping to reflect reality.
Thank you for your answer. I actually have set up an other charge, connected to a liability account (they run on accrual) and have posted the sales via sales receipts. I think the real problem comes in that they are switching from Keystone and are not wanting to pay to set the books up in QB before July of this year which was when the deposits were made. I was wondering if there was a way to somehow account for the cash coming in and out before their beginning period in QB, but it sounds like I will need to go back further?
Which builds the listing of transactions by Name, for managing the liability balance.
You still have to find out where the money went.
"and are not wanting to pay to set the books up in QB before July of this year which was when the deposits were made."
Then it is Equity. The Accounting Formula is:
Assets = Liability + Equity
They have More Liability = less Equity. It's not in the bank (asset) so it is offset to Equity. Process the Deposit and in the bottom part, show it is a Net = $0 deposit, because you post that it actually went into Equity.