How do I record down payments and then later invoice the customer without QB showing a negative accounts receivable balance?

"Won't creating the credit memo decrease my income account?"

It changes whatever you need it to affect.

You make an Other Charge type item for prepayments. Link it to income, for a Cash basis entity; link it to Liability, if you are allowed to carry liability.

Use this on a Sales Receipt when you get the prepayment.

Oh:

"one month later customer didn't pay so added a late fee"

Never do that on the Existing invoice; you just revised your Prior year Sales and Financial data.

You assess a late fee using the function, which creates a New Invoice. This is a New Charge, dated Now, and increases their total AR Owed to you.

If you turned in your financial data for reporting, you might need to edit and Remove all those late fees you added after the fact to old, existing, invoices.

My question is how I handle the deposit after I enter the Credit Memo for the prepayment/deposit from my customer. I see the credit memo reduced accounts receivable, but shouldn't the money be landing in undeposited funds account? I'm missing a step (or 2). The day I get the check, the money will go into my one bank account, so I am not sure how to take it from the credit memo to the deposit and link them all together, without counting the deposit as a sale, until the final payment is made.

I looked at a statement and the one that applies to us is listed below. We are on accrual method. IF, if the deposit is refundable, it is a liability until the job/sale is invoiced. Problem is, once the customer first paid based on the estimate, I moved it to an invoice. I don’t want to pay for taxes until the final payment is made, since I do not work on it until then. Sometimes, customers will take 6-8 months to pay on an item.

Hi @S-Ponder,

Let me take care of your query about recording partial payments as a liability instead of a sale.

When recording a deposit, select Accounts Receivable as the From Account. This increases the customer's balance without recording a sale and creating a credit memo. Here's how:

1. From the Banking menu, select Make Deposits.
2. Choose the correct bank account and enter the correct date.
3. Select the customer in question under the Received From column, and then select Accounts Receivable under the From Account column. 
4. Enter the amount, and fill out the other columns as necessary.
5. Click Save & Close when done.

Once the invoice amount gets paid in full, create an invoice for the customer. Ensure the correct dates are entered, along with other information in it. Follow these steps:

1. From the Customers menu, select Create Invoices.
2. Choose the customer in question in the Customer:Job drop-down menu.
3. Select an item/service under the Item column, and fill out the other columns as necessary.
4. Hit Apply Credits so your customer's deposits from before get applied to the invoice. 
5. Click Save & Close.

You also have the option to split a single estimate into multiple invoices (also known as progress invoices). Check out this article on how to enable and use this feature: Set up and send progress invoices in QuickBooks Desktop.

Do you have any other questions in mind? Please post them below, and I'll get back to you.

That works for me! However, the estimates reporting leaves a lot to be desired. Now I am trying to use the estimates reports, under customer center, and have updated the estimates to reflect active and inactive according to the status of the customer and the job. Changing this status does nothing that I can see with the exception of the leaving a little check mark. It will not change the Open Balance column. I like the "amount" column to reflect the amount of work that was quoted, but I need to reflect the actual potential income in the "Open Balance".  Since I do not want to create an invoice for any work until it is delivered to the customer, I have to work in estimates, unless there is another option.

Hello, @S-Ponder.

An estimate is a non-posting type of transaction. You'll need to enter an invoice and apply the prepayment (credit memo) you've recorded. I can walk you through on how to do it.

You can convert the estimates that you have into an invoice. By doing so, your billing proceeds directly from the line items and pricing that your customer approved, and simplifies both your costing and your billing procedures. Here's how:

1. Go to the Customer menu.
2. Select Customer Center.
3. Choose the name who has an estimate.
4. Open the estimate transaction.
5. From the Create Estimates window, click the Create Invoice button.
   • You'll be routed to the Invoice page.
6. Review the invoice details.
7. Click Save and Close.

Once the invoice is saved, you can now apply the credit memo you've created.

1. Open the invoice.
2. Click the Receive Payments button.
3. From the Receive Payments window, click the Apply Credits link.
4. From the Discount and Credits window, click the Credits tab.
5. Mark the credit you want to apply.
6. Click Done. 
7. Click Save and Close.

Once you've completed the process, here's how your report will look like:

To learn more about different workflows in recording your transactions in QuickBooks, you can check these articles:

• Accounts Receivable workflows in QuickBooks Desktop
• Accounts Payable workflows in QuickBooks Desktop
• Learn the reconcile workflow in QuickBooks

Let me know if you have other questions. I'm just a few clicks away.

From what I understand from previous responses, the prepayments should be considered a liability, and not a sale. We are using the accrual method, therefore, the sale is not recorded until the final payment is made. The prepayments are all refundable until the final payment. When I had the partially paid invoices entered, QB calculated sales tax on all, counting the prepayments as income.  I have backed out all the invoices that were partially paid and entered them as estimates. I am looking for the best way to report for prepayments in "estimates", active estimates, inactive estimates and invoices (paid in full). The inactive and active estimates baffles me - the designation does nothing. I would like it to zero out in the open balance.

I appreciate hearing again from you, @S-Ponder.

When depositing prepayments, it should be associated to a liability account. Let me show the workflow to you.

To create a liability account, here's how:

1. Go to the List menu.
2. Choose Chart of Accounts.
3. From the Chart of Accounts window, click the Account drop-down.
4. Select New.
5. From the Other Account Types drop-down, select the Other Current Liability account.
6. Click Continue.
7.  In the Add New Account window, enter the name of the account (i.e. Prepaid Customer).
8. Click Save and Close.  

Once completed, you can now deposit the prepayment. Now, let's create a prepayment service item and use it in recording the credit memo.

Also, we have to make sure to associate the service item to the liability account. By doing so, the “Prepaid Customer” account will show a 0 balance.

From here, you'll see your Open Accounts Receivable will have a credit balance on it. Also, the entire process ensures that when you convert the estimate to invoice it will be considered a liability, not a sale.

Feel free to click the Reply button if you have other questions. I'm always here to help.

I don't know if this helps, but I am also a subcontractor but we also get jobs from other customers where we require a 60% deposit to order materials and start the job. What I do is create an estimate for the customer. When they accept the estimate I then create an invoice from that estimate, billing the customer 60% of the estimate total. They pay it, we do the job, then I send a final invoice for the balance due once the job has been completed. When they pay it I just receive the payment in QBO and match it to the final invoice. This has worked well for me and eliminates the need to do a credit memo.

I hope I explained that right and it helps. 

Is there a way to send a "receipt" to the customer after doing this?

Thanks for joining this thread, @tricoteuse.

Yes, you can send a receipt by clicking the Email button at the top of the Customer Payment window.

You can also customize your email templates in QuickBooks Desktop. Let me show you how.

1. Go to the Edit menu and select Preferences.
2. Select Send forms and then Company Preferences.
3. Click the Delivery Method Default drop-down menu, select Email.
4. From the Email Templates drop-down menu, select a transaction type. 
5. Select Add Template.
6. Enter a template name.
7. Customize the subject line and body.

For more detailed steps, refer to this article: Create custom email templates.

Please let me know if you need further assistance. I'll be around to help. Have a great day.