The Best Way to Move Income to Unearned Revenue

I hope we'll get over the situation we have today because it's affecting business events, Tammy.

I'll help you record the movement of funds. I'll give insights about the posting entries as well, so you'll be guided properly.

By creating a credit memo, the money reduces the Income account. Then, it puts it back to the Accounts Receivable (A/R) account, which also creates a negative balance on the customer's profile. That negative balance (or credits) can be used to pay their future invoices.

To move the funds to your Unearned Revenue account, you'll debit it from the A/R and credit to it, like in the screenshot below. Remember to always tag the customer's name when you use the A/R account. 

Please note that the credit memo and journal entry will remain unapplied and open in the customer's profile. Thus, you'll want to link them by creating a Receive Payment transaction.

The catch here is the credits will be removed from the customer's profile. And by the time you invoice them, you'll need to make another journal to reverse the entries. This step will put the credits back to their profile to be used in paying their invoices.

Technically, we can just move funds via journal entries. However, I would suggest consulting an accountant to see if it's better to just record a credit memo or still do journal entries to declare the unearned revenue.

I respect that you know better what's best for your business. I'll support whatever steps you need to know to achieve the correct record that you want to see on your reports. Just let me know if you have any questions.

Hi Tammy Ho -

In general, it is usually best to use system specific functions vs. doing generic JE's so I rarely would say JE's, but from what is described here, think I would vote for what Tammy has proposed if I had to manage all this. 

The real/correct detailed accounting transactions have already been created in QB.  Revenue computed and customer billed and even paid, why reverse all that with credit memos, essentially doubling every entry with reversing entries in and out for both AR and revenue, when all you really want to do is "move" that revenue from earned revenue on the P&L onto the balance sheet as unearned until the event date makes it earned.  

Thank you Jess. Our CPA had suggested using a credit memo, as well as moving the income over to Unearned Revenue. I just wasn't sure how to go about the two step process, hence my thought of a JE directly from Services Income to Unearned Revenue. This makes sense, we just need to make sure everyone communicates as customer events resume, as we've split accounting tasks between two of us. Thank you for your insight!

Since I'm hoping we all never have to do this again, my thought to create a JE to directly move the income from Services to Unearned will both do the job and seems easiest and most direct. I just want to make sure that it's an acceptable solution (GAAP). As all of this will leave an audit trail, our CPA can review at tax time and request that I make changes if need be. Thank you for your insight Teri!

Hi Tammy Wo. I'm glad to hear the input from Jess was able to help with moving your income. I just wanted to remind you the reply button is always there in case you need anything else and have a great rest of your day.