We are a direct mail marketing company and we use accrual basis in recognizing income. We have received a lot of payments for invoices in March 2020 for postcards that were supposed to mail in March 2020 but the customers requested to hold it off due to the pandemic.
For example, Invoice 2348 was dated March 10,2020 amounting to $2245 and the customer paid in full on March 12,2020. Consequently, this payment was applied to Invoice 2348. However, the customer requested to move the mailing to May 8, 2020. In accounting perspective, we received an advance payment since the product won't be delivered until May. We decided to change the Invoice date to May 8, 2020 instead of March 10 so the corresponding income is recognized in May, the correct month when the product is delivered.
We already applied all those payments we received in March to their respective invoices but we had to change the invoice date to the correct month when we would recognize the income. My problem is that our Balance Sheet as well as Aging Report for March and April are showing negative balances because of those paid ante-dated invoices. Our Profit and Loss Statement is showing balances correctly so no problem with it.
What should I do to remove the negative balances in March and April?
Welcome to the QuickBooks Community, @jsedigo2.
Thank you for providing details about your concern. When the payment from the customer was entered into QuickBooks before the invoice or statement charge it will result to a negative balance in Accounts Receivable (A/R) report.
Negative (A/R) is the correct posting of unapplied customer credit. You will want to move the negative AR to another current liability account. Whatever you do you will have to reverse your actions once you have an actual sale to this customer. If you toggle to cash basis on your Balance Sheet report the negative A/R report should drop down to Retained Earnings and clear the negative A/R.
Also, for the prepayment you receive. You can set up a retainer process for your company in QuickBooks Online. This is treated as a liability, this works as although your business is holding the money from a deposit or retainer, it doesn't belong to you until it's used to pay for services. Once you invoice the customer and receive payment against it, you'll turn that liability into income.
First, you'll need to create a liability account. This way you can track the amount of the retainers you receive from your customers.
Once done, you'll need to create a retainer item. This can be selected when creating an invoice or sales receipt for a deposit or retainer payment.
Once you have set up the accounts and the retainer or deposit item, you can begin to create Sales Receipts for the deposits or retainers you receive.
Then 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 receive it like a payment.
For more details, please refer to this article link: Record a retainer or deposit.
Moreover, here's how to track deposits or retainers by customer:
Fill me in if you have further questions. I'll be here to help you. Stay safe and take care always!
@Divina , thank you for responding immediately.
I failed to mention that our processes are automated. Sales receipt/Customer invoice comes directly from orders in Salesforce. From Salesforce, invoices are created into Quickbooks. Once a customer approves postcards to print, it triggers the invoice to be created both in Salesforce and Quickbooks. With that, we do not create invoices or sales receipts manually in Quickbooks. Each product we have is also linked to a product in Quickbooks. I'm not sure if the solution you provided suits our internal process. It would create chaos in Salesforce. Moreover, payments are processed the following day after the invoice is created. We collect from Quickbooks payment or CheckComposer.
Is there any other possible way to go about it other than creating this liability account?
Thanks for providing details about your concern, jsedigo2.
Invoices payments that are processed through QuickBooks Payments are deposited on the Undeposited Funds account or the bank account you setup.
Once your customers pay the invoices, it will automatically pay the ones in QuickBooks and deposit the payments to the above accounts.
On the earlier post, you mentioned that you are running your reports on accrual based. Also, the date of the invoice that was paid last March was changed to May. This resulted for your A/R Aging Summary and Balance Sheet reports to show negative balances for Accounts Receivable as of March.
To get rid of the negative A/R on your reports as of March, you can delete the invoice payment.
Then, reenter it as a Sales Receipt after setting up for retainers. You can follow the steps provided by DivinaMercy_N or in this article: Record a retainer or deposit.
Also, it was mentioned in the article on how to apply the retainer to the invoices.
If you want seek other options, you can consult your accountant. They know what's the best way to correct this that will suit your books.
We'll be right here if you have additional queries.