Invoicing using deferred revenue and billing for balance

Thanks for providing details of your concern, @Opus4one. I'm here to ensure you can record the customer's prepayment so you can efficiently manage your business.

There are times when customers pay you in advance for the services and items. When you receive such prepayments, QuickBooks Online allows you to record them as deferred revenue, which is a liability account. This means the money is not yet considered as earned income because the goods or services for which it was paid have not been provided.

That said, it's practical to initially record the entire prepayment as a lump sum in the deferred revenue/liability account. After you issue the final invoice, you can then decide how to apply the prepayment to the invoice that includes both product and service content.
 

But first, you need to create a liability account to track the amount of retainers you receive from your customers. Here's how:
 

1. From the Cog Wheel, select Chart of accounts.
2. Tap New at the top.
3. In the Account Type drop-down, click Other Current Liabilities.
4. In the Detail Type drop-down, choose Trust Accounts - Liabilities.
5. Select an option from the When do you want to start tracking your finances from the is account in QuickBooks? dropdown list.
6. Once done, Save and Close.

After that, let's create a retainer item by following these steps:

1. Go to the Cog Wheel icon ⚙, then select Products and Services.
2. Tap New.
3. From the Product/Service information panel, choose Service.
4. Enter a name for the new product or service item (for example, Retainer).
5. From the Income account ▼ dropdown menu, select the liability account created from the steps above.
6. Click Save and Close.

When you invoice the customer for the services you perform for them, you can turn the retainer you previously received into credit on an invoice and receive it like a payment. Here's how:
 

1. Create an invoice for your customer that lists the services or goods you've provided.
2. On the last line of the invoice, in the Product/Service field, select the Retainer item we set up earlier.
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.
4. Save and Close once done.

The entire invoice amount will be deducted. However, we can't split it or apply it to specific items or services. At the end of the day, the approach you take should align with the terms of your prepayment agreements and your business practices. If there are specific accounting or legal considerations, seeking advice from a professional accountant is advisable.

You can open this article that details the process of recording a retainer in QuickBooks Online: Record a retainer or deposit.

For future reference, I'm adding this guide on how you can record a customer refund based on various scenarios: Record a customer refund in QuickBooks Online.

Let me know if you have follow-up questions about recording customer prepayments by adding a reply below. I'd be willing to provide clarity and accurate answers for it.

Hi,

Thank you for your advice and suggestions. I was really hoping there would be a way to split the invoice between the products and services between they will both eventually align with different COGS for each.  Will have to keep thinking about ways to account for this...something for the future?