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Level 1

How do I resolve negative A/R balance resulting from payments applied to ante-dated invoices

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. image.png image.png

What should I do to remove the negative balances in March and April?

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QuickBooks Team

How do I resolve negative A/R balance resulting from payments applied to ante-dated invoices

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.

  1. Go to Settings ⚙,select Chart of Accounts.
  2. Click New.
  3. From the Account Type ▼ drop-down menu, choose Other Current Liabilities.
  4. From the Detail Type ▼ drop-down menu, Trust Accounts - Liabilities.
  5. Enter a name for the account (ex.  Trust Liabilities) or accept the suggested name.
  6. Hit Save and close.

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.

  1. Select Settings ⚙, then click Products and Services.
  2. Hit New.
  3. From the Product/Service information panel, choose Service.
  4. Enter a name for the new product or service item (ex. Retainer).
  5. From the Income account ▼ drop-down menu, click Trust Liability Account.
  6. Select Save and close.

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.

  1. Create an invoice for your customer that lists the services or goods you provided.
  2. On the last line of the invoice, in the Product/Service field, select the Retainer or Deposit item.
  3. Enter the retainer Amount as a negative to subtract it from the invoice. You cannot enter a retainer amount greater than the invoice total. An invoice can have a zero total, but not a negative one.
  4. Select Save and close.

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:

  1. Go to the Reports menu and click Balance Sheet.
  2. From the Report period drop-down menu, select All Dates. Then Run report.
  3. In the Liabilities section, locate your trust liability account.
  4. Pick the amount shown for the account to open the Transaction Report for that account.
  5. Click Customize.
  6. Once on the Customize report panel, select Rows/Columns.
  7. From the Group by ▼ drop-down menu, select Customer.
  8. Select Run report.

 

Fill me in if you have further questions. I'll be here to help you. Stay safe and take care always!

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Level 1

How do I resolve negative A/R balance resulting from payments applied to ante-dated invoices

@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?

 

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Moderator

How do I resolve negative A/R balance resulting from payments applied to ante-dated invoices

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.

  1. Click the Gear icon in the upper-right corner and select Account and Settings.
  2. Select the Payments tab and go to the Chart of Accounts section.
  3. Review the accounts in the Standard deposits and the Processing fees fields.
  4. Click Save and Done.

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.

  1. Open the invoice payment.
  2. Click More at the bottom and select Delete.
  3. Click Yes to confirm the action.

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.

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