cancel
Showing results for 
Search instead for 
Did you mean: 
nick25
Level 3

Hello, we handle customer prepayments incorrectly-our A/R often shows a (-) balance. What's the best way to treat prepaid income (liability), before a sale is completed?

... and through the final posting of the Sales invoice.
Solved
Best answer February 11, 2021

Best Answers
Rustler
Level 15

Hello, we handle customer prepayments incorrectly-our A/R often shows a (-) balance. What's the best way to treat prepaid income (liability), before a sale is completed?

Create a liability account called deposits

create a service type item that is linked to that deposits account called custdep

use that item on a sales receipt when the deposit is received

on the invoice, list the items being sold, list the custdep item, qty is negative one, and the amount of the deposit.  The customer pays the balance due

 

calling it prepaid income is a problem in an audit, call it a deposit.  Pre-paid income is taxable as of the date it is received in both accrual or cash based accounting

View solution in original post

4 Comments
Rustler
Level 15

Hello, we handle customer prepayments incorrectly-our A/R often shows a (-) balance. What's the best way to treat prepaid income (liability), before a sale is completed?

Create a liability account called deposits

create a service type item that is linked to that deposits account called custdep

use that item on a sales receipt when the deposit is received

on the invoice, list the items being sold, list the custdep item, qty is negative one, and the amount of the deposit.  The customer pays the balance due

 

calling it prepaid income is a problem in an audit, call it a deposit.  Pre-paid income is taxable as of the date it is received in both accrual or cash based accounting

View solution in original post

nick25
Level 3

Hello, we handle customer prepayments incorrectly-our A/R often shows a (-) balance. What's the best way to treat prepaid income (liability), before a sale is completed?

Thank you Rustler, for good advice to avoid calling a deposit prepaid income.  In fact, our procedure is to issue a proforma invoice, get the advance payment, and then once we ship the order, post the final invoice.  So we get the money in and post it to Deposits (a liability account). Please forgive my ignorance, but what is the correct way then to post the invoice and clear the Deposit account - can that be automatic, or is all of this via journal entry?  Grateful for your help!

nick25
Level 3

Hello, we handle customer prepayments incorrectly-our A/R often shows a (-) balance. What's the best way to treat prepaid income (liability), before a sale is completed?

Again, I thank Rustler for his very helpful advice.  However, I think I framed my question poorly, for which I apologize.  Here is a better description of our problem, and our procedure which causes it:  We sell $8,000 radon instruments.  We issue an offline proforma invoice to the customer, before we ship.  In QuickBooks, we post the receipt of those funds to the customer, which seems automatically to post it to A/R... (which is why our A/R often shows a negative balance when a Balance Sheet is printed).  In QuickBooks we then create and post a normal Sales Invoice (which corrects the negative A/R balance), and ship the order.    I would be so grateful if someone would set us straight!   To avoid negative balances in A/R, must we journal those advance payments, and then reconcile them when the final invoice is created?

SarahannC
Moderator

Hello, we handle customer prepayments incorrectly-our A/R often shows a (-) balance. What's the best way to treat prepaid income (liability), before a sale is completed?

Hello there, nick25. 

 

Thanks for getting back to us and providing additional information. 

 

The negative balances in Account Receivable happen when there's an unapplied customer credit. In this situation, the negative A/R is the correct posting.

 

To avoid negative balances in A/R, you'll only have to make sure that credit is applied to the invoice. It keeps you from getting a negative balance.

 

Here's how you can apply the credit to an invoice you already created:

 

  1. Select + New.
  2. Select Receive payment or Receive invoice payment.
  3. Enter customer name.
  4. Select credit and the invoice.
  5. Then, hit the Save and Close button.

 

You may want to check about creating and applying credit memos or delayed credits in QBO. Also, the links below will help you out when doing your reconciliation in QuickBooks Online: 

 

 

The Community is always open if you have other questions. Just comment below if you have other concerns or need help with clarifying things in QuickBooks. Take care and have a good one!

Need to get in touch?

Contact us
Sign in for the best experience
Ask questions, get answers, and join our large community of QuickBooks users.
Sign In / Sign Up