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TSPLLC
Level 1

Client Cancels Event, Forfeits Payment With Sales Tax

I'm not quite sure how to properly due this, because if I change the invoice, it results in a negative sales tax balance.

Customer booked an event in 2019 or 2020. Made a non-refundable payment of 50% of the balance towards that event, which was counted as income and sales tax was report and paid to the state.

 

In 2021, they have cancelled their event. How do I close out the invoice, as it has a balance due? I can't just halve the amounts, as it changes the tax rate and how Quickbooks applies the payment. Every time I do that, it results in a difference between the Sales Tax Collected and Sales Tax Due on my Sales Tax Liability report.

6 Comments 6
Catherine_B
QuickBooks Team

Client Cancels Event, Forfeits Payment With Sales Tax

Hello there, TSPLLC.

 

For the customer's money, you can't collect, you can record it as a bad debt and write them off. First, you'll have to create a Bad Debt expense account. If you haven't created one, you can use these steps: 

 

  1. Go to the Lists menu and click Chart of Accounts.
  2. At the bottom, click Account and select New.
  3. Click Expense and then Continue.
  4. Enter a name something like Bad Debt.
  5. Click Save and Close.

Then let's close out the unpaid invoice. Here's how: 

 

  1. Click Customers and select Customer Center.
  2. Look for the customer and double-click on the invoice.
  3. Click Receive Payments from the Invoice window.
  4. Under the PAYMENT AMOUNT field, enter a $0.00. 
  5. Click Discounts and Credits.
  6. From the Discount tab, enter the amount to write off or the remaining amount on the invoice.
  7. Select the bad debt account you just created under the Discount Account.
  8. Click Done and then Save & Close.

For the paid sales tax, I'd suggest reaching out to an accountant on how you'll record the adjustment. For more details, you can see the process sales tax adjustment link.

 

You can also run reports that will help you get an overview of your account balances: Customize reports in QuickBooks Desktop.

 

Feel free to leave a reply below if you need more help. Take care!

TSPLLC
Level 1

Client Cancels Event, Forfeits Payment With Sales Tax

So, I'm not sure if Bad Debt is right, as they don't owe us the balance due until four weeks prior to their event. Since they are cancelling five or more weeks from their event, they no longer have an obligation to pay the balance due by the due date and we no longer owe them the obligation of reserving a service to be provided at their event.

Does this help?

Catherine_B
QuickBooks Team

Client Cancels Event, Forfeits Payment With Sales Tax

Good to hear back from you, TSPLLC.

 

Thanks for the clarification. You can apply a journal entry credit to the open invoice to zero out its balance instead of recording a bad debt. Let me show you how: 

 

  1. Click Company from the menu and select Make General Journal Entries
  2. Enter the affecting account on the first line and enter the balance amount on the Debit column.
  3. Select Accounts Receivable on the second line and enter the balance on the Credit field.
  4. The totals should be equal and then Save & Close.
  5. From the Customers menu, click Receive Payments.
  6. Select the customer's name and select the open invoice.
  7. click Discounts And Credits
  8. Select the journal entry you just created. 
  9. Click Done then Save & Close.

The customer's invoice balance is now zeroed out. You can use the Run Reports in QuickBooks Desktop article to get an overview of your customer transactions. 

 

I'd highly recommend reaching out to an accountant so they can help you identify the correct accounts affecting the journal entry. 

 

Let me know if you have other concerns. I'm just around the corner to help. Have a good one!

TSPLLC
Level 1

Client Cancels Event, Forfeits Payment With Sales Tax

So, I followed these steps, and while it zeros out the invoice, my Income by Customer Summary gives me a negative amount for the income, and the Sales Tax to Be Paid increases as well, on my Sales Tax Liability Report.

AlexV
QuickBooks Team

Client Cancels Event, Forfeits Payment With Sales Tax

Hi TSPLLC!

 

Allow me to join this thread so I can share some details about the unpaid invoice.

 

Journal entry may sometimes tricky so it's best to seek help from your accountant. They can guide you on the proper accounts to use with this method especially since this will affect your income and taxes.

 

Also, you can make a sales tax adjustment. This is applicable if you want to decrease the sales tax liability. For the detailed steps, here's how to process sales tax adjustment in QuickBooks Desktop.

 

Need more help? Keep your posts coming and we'll respond as soon as we can.

TSPLLC
Level 1

Client Cancels Event, Forfeits Payment With Sales Tax

Unfortunately, I'm now getting more confused, as an accountant offline told me that since I am cash basis, I should be able to just reduce the rates on the invoice in half, and that will be just fine.

 

The problem is: this changes how Quickbooks applies the first payment when it was originally received a year ago. Which then throws my sales tax off on my Sales Tax Liability for the prior period, and of course, this period.

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