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How to Record Prepayment on Invoice as Liability?

Thank you in advance for help. 

The client is in entertainment business. He receives the prepayment for future events and must record them on liability account until the event happened. At the date of event, he receives the balance on invoice and need to move the prepayment from liability account to income account. Seems the Quickbooks offer either to post the prepayment on liability account, or partial payment on invoice, but not both at the same time, and I didn't find the options to move the amount from liability account to income automatically when invoice is due.  See below for details:

I need to record prepayment on invoices as liability, when 

 Invoice for customer created 1/1/14 for $1000

Event date (due date on invoice) 9/1/14

Prepayment received 1/15/14 for $500

If I use the other charge item connected to Deposit liability account to receive payment 1/15/14, and actualy process this payment using sales receipt, it will allow me

1)      to make a deposit to the bank along with other deposits,  (+)

2)      to show the liability for $500, (+)

3)      but it’s doesn't show the correct balance on invoice and AR  in period between 1/15 – 1/9/14 (-)

If I add other charge item connected to Deposit liability account  to invoice with negative number, it will

1)      show the correct balance on invoice and AR in period 1/15 – 1/9/14 (+)

2)      but it’s zero out the liability account for period 1/15 – 1/9/14 (-)

My problem is that for period 1/15 -  9/1/14 I need both:

1)      to see prepayment on liability account

2)      to see correct balance on invoice

And actually on 9/1/14 I would like the auto adjustment from the  liability account to the income account for prepayment. We are talking about one invoice but it’s bunch of them every month. 

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Best answer 12-10-2018

Accepted Solutions
Established Community Backer ***

Step 3 is because you correctly posted this as Liability,...

Step 3 is because you correctly posted this as Liability, and did not leave it as a generic and floating AR credit. It should NOT be seen in AR if it is still a liability.

I use the Other Charge Item on a sales receipt when I get the money, or an invoice if they need me to "bill" them.

The full invoice for full services is for the full amount due.

Then, you also use that prepayment Other Charge liability item on a Credit Memo for the customer name and let QB apply it to the invoice.

"My problem is that for period 1/15 - 9/1/14 I need both:

1) to see prepayment on liability account

2) to see correct balance on invoice

And actually on 9/1/14 I would like the auto adjustment from the liability account to the income account for prepayment. We are talking about one invoice but it’s bunch of them every month."

 

You can control when this shows up by how you date the CM, but do NOT date it earlier than the invoice for the full services rendered.

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5 Comments
Established Community Backer ***

Step 3 is because you correctly posted this as Liability,...

Step 3 is because you correctly posted this as Liability, and did not leave it as a generic and floating AR credit. It should NOT be seen in AR if it is still a liability.

I use the Other Charge Item on a sales receipt when I get the money, or an invoice if they need me to "bill" them.

The full invoice for full services is for the full amount due.

Then, you also use that prepayment Other Charge liability item on a Credit Memo for the customer name and let QB apply it to the invoice.

"My problem is that for period 1/15 - 9/1/14 I need both:

1) to see prepayment on liability account

2) to see correct balance on invoice

And actually on 9/1/14 I would like the auto adjustment from the liability account to the income account for prepayment. We are talking about one invoice but it’s bunch of them every month."

 

You can control when this shows up by how you date the CM, but do NOT date it earlier than the invoice for the full services rendered.

View solution in original post

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Thank you for clarifying. Yes I asked the same question t...

Thank you for clarifying. Yes I asked the same question twice, but with more details second time, and I still feel like I'm inventing the wheel trying to figure out how to record correctly prepayment on invoices. What I learn so far - that technically I should 1) apply prepayment to credit memo through other charge item connected to liability account with the date that will be due date on invoice and 2) create the invoice for outstanding balance, not the total price for service.

The full invoice for full services is for the full amount due. Does it mean I must not create invoice for total amount, but only for the balance between prepayment and the price for the event? These parts I miss understand. Because by accounting rules – I must create invoice for total amount, apply prepayment and post it to liability account and when its due date for event – move it from liability to income. But I could not find the way to do it in QuickBooks. Sales receipts in general for total amounts received for services already provided and credit memo usually used for overpayment or for returned items, neither of them by nature created for prepayment on invoices.
Not applicable

this is closer to what I do than a construction company a...

this is closer to what I do than a construction company and does use an invoice and not a sales receipt.  This makes much more sense to me.
Not applicable

Why are you reducing the Liability account when you recei...

Why are you reducing the Liability account when you receive the prepayment?  The liability, which looks to be like Unearned Revenue, should only be reduced when the event takes place and you recognize the revenue.  I would just receive the payment against the Invoice, but leave the Liability to the customer in place as you aren't providing the service until the date of the event.  
Established Community Backer ***

No, your step 2 is incorrect. Create the invoice for the...

No, your step 2 is incorrect.

Create the invoice for the Total, as if being paid in full.

Apply the prepayment using a Credit memo, to reduce the amount owed to not less than $0.

Read about the Credit Memo here:

http://support.quickbooks.intuit.com/support/Articles/HOW12869

 

"Sales receipts in general for total amounts received for services already provided and credit memo usually used for overpayment or for returned items, neither of them by nature created for prepayment on invoices.'

 

No.

 

Sales Receipt = this is a sale as of this date and it also is paid in full as of the same date = this one transaction.

 

Invoice = this is a sale of this date, but payment follows at a later date. This is the AR process. Later, you use Receive Payment. Therefor, Two Transactions having separate Dates.

 

Credit Memos are used to apply credits, such as returns of goods, or reductions on charges, or applying liability amounts to amounts owed. For instance, a Landlord doesn't return your full security deposit but applies some of it to Damages you owe, or your final month's rent owed.

 

An item used on a credit memo Credits AR and debits whatever account the item is linked to.

 

An item used on a sale receipt or invoice credits whatever account that item is linked to. The sales receipt debits Funds (Undeposited funds or Bank) and an invoice debits AR.

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