Recording Invoices and Payments in a separate time frame

Most efficient may come back to haunt you in an audit as it may not be most correct.

Background - if you were cash instead of accrual the down payment received would 100% be income even if you did no work until the following year. Cash in hand for cash accounting is income when available for yoru use. Period.

But since you are accrual, the rules are slightly different. If you invoice for a full job in year 2020, but do not receive money until 2021 it is all 2020 income.  Therefore you cannot invoice a dime in 2020 that is not income in 2020. Follow this? No matter if you never get paid (well you will eventually write it off in a later period), the date you invoice is the date you record full income for that invoice.

To treat a job down payment as just a down payment you will have to record it as a current liability, then convert that liability to a customer credit to apply to future invoice.  By receiving a payment with no existing invoice to apply it to you will be creating a customer credit that is not tied to income. You would refer to it as a prepayment.

Hi John,

Thanks for your response. I have been told I should create it as a liability. My only concern here is we use progressive invoicing, so the invoices are created from an estimate. I'm not quite sure how I should/would use a current liability -- unless I create an item number for down payment? .... but then will that come off of the total due for final invoicing? Hopefully that is easy to follow.

Although, I just did re-read your response about creating a credit afterwards. So then the credit would go towards the items on the estimate/invoice? I'm hoping I'm following this correctly. I do want it dont right as I don't want to inflate or deflate either year, yet I want my job costing to stay current.