QB Posts the Advance Payment from Customer on invoicing. & shows large liability even though some funds are not received

I understand the importance of recording transactions accurately, @njsingh. I'd be glad to show you how to properly handle advance payments, and then use it against an invoice in QuickBooks Desktop.

To provide the accurate resolution, I need more information about how you record the advance payment. If you record it as a service item, then that’s why it’s mapped to the liability account.

To fix this, you’ll want to apply upfront deposits or retainers to invoices. By doing so, the deposit is transferred from your liability account to your income account. It can be done by adding a line item to the invoice for the upfront deposit or retainer, or applying them as a credit.

If you’d like to enter upfront deposits or retainers as line items, this will reduce the total of the invoice by the amount of the deposit. This means that the transaction will be marked as paid if we applied deposits for the full amount.

Here’s how:

1. Open the customer invoice.
2. In the Detail section, on the next available line, select the Upfront Deposit item you created from the Item drop-down list.
3. Enter the amount of deposit to be applied to the invoice in the Amount column.
4. Select Save and close.

Additionally, you have the option to apply upfront deposits or retainers as credits. This will serves as the invoice payment. For the complete instruction, check out the Option B: Apply upfront deposits or retainers as credits under Step 5: Apply upfront deposits or retainers to invoices from this article: Manage upfront deposits or retainers.

You can also create a journal entry to correct the amounts. Since every business structure is different, I recommend consulting your accountant. They can provide professional help to figure out which option is best for you.

Feel free to read about writing off customer and vendor balances to get rid or offset the amounts. This lists two methods you can choose from to manage the payments.

If you have other questions about advance payments, place them in the comment section below. Know that I'm always here if you also need further assistance with the steps provided above. Stay safe.

Thanks for the reply. Here are the steps I followed:

1. Customer sends a PO (started  in year 2020)

2. I generate the invoice mapping to "Advance Payment by Customers"  (Liabiity Account) as a non-inventory item

3. On invoicing only, QB posts it as a liability even though the money is not yet received.

4. Customer deposits the money via ACH

             Note: The product is mostly on the way via a fully laden rail car to meet the schedule.

5. I go to the invoice and select "Receive Payments" and receive against the invoices and any weight adjustment credits from previous invoices

6. When the railcar is released after discharging the product, I make a Journal Entry posting it as income        against "Advance Payment by Customer" account.

              It worked fine so far customer was sending the payments in 2020

              In March 2021, the customer stopped the payments while a few shipments were already delivered.

              We retrieved the rail cars in end April 2021, and invoiced the company for relevant charges and                      declared bankruptcy a year later.

7.  The 2021 fiscal year, the liability account "Advance by Customers" shows all the invoiced amounts (not paid by customer as if already paid by customer with a huge liability.

How can I offset this amount by a Journal Entry to reflect properly with negative liability? Against what account do make this entry.

Or there is a another solution?

Thanks.

The matter is resolved. 

Thank you for your assistance.