@Maria123123 @Grimayoj
The proper way to handle prepayments depends on; 1) whether you need to issue an invoice to your customer for the prepayment, 2) whether or not you want QB to be able to automatically apply the payment to a future invoice, and 3) how you want/need the prepayment to show on your balance sheet. From an accounting perspective, a prepayment for deferred revenue affects both Cash and Deferred Revenue (liability). It's important to know that for QB to automatically track and apply it to future invoices, the prepayment must be recorded as a credit to A/R (not a credit to your Deferred Revenue liability account)
1) If you need to issue an invoice to your customer for the prepayment, create a service product called 'Customer Deposit' or 'Customer Prepayment' and select Deferred Revenue under 'income account'. Set up Deferred Revenue as a liability account if you haven't. Then, create an invoice and list the Customer Deposit service item and the amount. Then, receive payment on the invoice. That will book the payment received to cash and an offsetting amount to Deferred Revenue. Then, when you issue a future invoice, you can add the Customer Deposit service product to the invoice as a negative amount. That will reduce the amount due on the invoice by the prepayment amount and reduce the Deferred Revenue amount. IMO, this is the cleanest method for your customer. The downside to this method is that you will have to apply to apply the amount manually. QB cannot automatically apply the prepayment if it is booked to Deferred Revenue.
2) If you want QB to be able to track and automatically apply the prepayment to a future invoice, just receive payment from the customer. That will record the increase in cash and a reduction in A/R (both credits). Then, when you issue an invoice, QB will allow you to apply the credit. The downside to this method is that QB makes a credit entry to A/R and not a liability account and you do not have an invoice to send to your customer. You can create a hybrid of #1 and #2 by using #1 to issue the invoice and receiving payment and then move the amount to A/R with a journal entry - debit Deferred Revenue and credit A/R. The amount is now sitting as a credit to A/R and QB can automatically apply it to a future invoice.
3) If you absolutely need the prepayment to show as a liability on your balance sheet, then you should go with the process described in #1.
