Recording Advance received from Customer with GST in Credit Note

We're pleased to have you here in the Community again, @bsv85. I'd be happy to take care of your concern and help you so you can proceed to record the advance payment that you've received from your customer and apply GST tax on it.

You would want to record the advance payment made by your customer and then leave it as a credit. This way, we can ensure that it'll be recorded accurately when you need it. To begin, here's how:

1.  Select + New.
2. Select Credit note.
3. Select the Customer name from the dropdown.
4. In the Product/Service column, select the item.
5. Enter the amount received for the retainer or deposit in the Rate or Amount column.
6. Select the GST rate in the TAX column.
7. Select Save and close.

This stay as an available credit. When you've rendered the service to your customer, You'll then create an invoice to apply the available credit.

When you're ready, here's how you can apply the credit note to an invoice:

1. Click + New and then select Receive payment.
2. In the Customer dropdown, select the customer.
3. In the Outstanding Transactions section, select the open invoice you want to apply the credit note to.
4. In the Credits section, select the credit notes you want to apply. Note: You will not be able to see the credits section if you have not created the credit note.
5. For the open invoice in the Payment column, enter how much of the credit you want to apply.
6. Leave the Payment method, Reference no, Deposit to, and Amount received fields blank.
7. Fill out the rest of the form, including the Payment date.
8. Make sure the total is correct after applying the credit note.
9. When you're done, select Save and close.

In addition, I've got you this article in case you'd like to view all your sales transactions in the future to give you a visual status of your open invoices, paid invoices, and sales transactions: View sales transactions.

If you'd like to personalized your sales forms to match it with your business, feel free to visit this article for the steps: Customise invoices, estimates, and sales receipts in QuickBooks Online.

Don't hesitate to get back to me if have any additional QuickBooks-related concerns. I'll be happy to have you here in the Community once again. Thanks for choosing QuickBooks, and have a nice day!

@Kurt_M 

You have mentioned 

1. In the Product/Service column, select the item.
2. Since this is an advance, what item is to be created/selected. 

Pl let me know. tq.

Hello there, @bsv85.

Depending on what your business offers to its customers, you can create a product item if you sell something to them or a service item if you provide a service and then select it when recording an advance payment. This means that your client paid you in advance to render or sell it to them.

In addition, feel free to visit this article that contains steps on how you can add a product and service item: Add product and service items to QuickBooks Online.

The Community is open 24/7 feel free to post here again if you have any additional QuickBooks-related concerns. Stay safe and have a good one!

Hi @Kurt_M 

I still did not get it. If we create a service item for service rendered. The Service Item will be linked to an Income Account. How does it get posted as an advance received from the customer, rather it will get posted to the Income Received Account. Pl correct me if i am wrong.. tq..

I appreciate you for coming back to the thread, bsv85. I'll be sharing details on how the customer's advance payment works in QuickBooks Online. Then, to ensure that the transactions are posted in the correct details.

Once you received an advance payment from a customer, you have different ways how you can record this based on various scenarios. It gets posted as an advance received from the customer once there's an available credit note that immediately applies to reduce the customer's current open balance. 

Then, you can open this article to view details on how you can easily enter an advance payment in QBO: How to record the advance payment received from customer.

Additionally, the customer's payments are usually posted into the Undeposited Funds account. The account holds invoice payments and sales receipts you want to combine. This keeps a record of payments in QuickBooks until you physically deposit the same payments at your real-life bank. 

Lastly, you may refer to this article to see information on how the Sales section gives you complete details of all the status of your sales entries: View sales transactions.

Don't hesitate to tag my name in the comment section if you have clarifications on this matter or other concerns about recording customers' payments. I'm always around to help you again. Enjoy your day, bsv85.

Hi @ChristieAnn  

I still am not sure how to go about linking a customer deposit with a credit note. Could you pl explain that.

Also, i am not sure how to create a credit note for an advance received from customer. As i understand, We have to select a product or service item to create a credit note. However, in case of advance received from customer there is no product or service at the time of receipt of the advance. Pl explain this too

Thank You. 

Hi @Kurt_M 

I did not understand. If i receive an advance from the customer, there is no requirement to select a service provided item Since, the service is not yet rendered.

Pl clarify.. Thanks

Hi there, @bsv85.

I'll share info about recording advance payments you received from customers in QuickBooks Online (QBO).

Yes, that is correct. Entering an advanced payment from a customer using a credit note requires a service item. You don't need to create and link a credit note to a deposit.

Instead, let's create a retainer to record the advance payment from your customers since the service is not yet rendered. Here's how to create the liability account to get started:

1. Go to Accounting.
2. Select Chart of accounts.
3. Click New.
4. Under Account Type ▼ , select Current liabilities.
5. On the Detail Type ▼ menu, select Client Trust Accounts - Liabilities.
6. Enter the name of your new account. Say Retainer Deposit or use the name suggestion.
7. Choose a default GST tax code.
8. Click Save and Close.

Then, let's create the service item which will be used to record the advanced payment. Let me show you how.

1. Go to Sales.
2. Select Products and services.
3. Click New.
4. Under Product/Services information, select Service.
5. Enter the name of your new service item. Say Retainer.
6. On the Income account ▼ menu, select the recently created liability account.
7. Click Save and close,

Once your item is ready, record the advance payment by creating a cash memo. And make sure to use the recently created item for the transaction detail line item.

Kindly read and use this article to learn more about retainer and how to use it when the service has been rendered by the customer linked to the advance payment: Record a Retainer in QuickBooks Online.

Now that the advance payment is recorded, let's generate a list of the latest outstanding balances of your customers. This way, you can inform them and let them prepare for the due dates coming in after a selected number of days.

I've got you covered if you have questions other than recording advance receivables in QuickBooks. Don't forget to tag my name, @JonpriL, in the comments below. Take care and I wish you continued success, @bsv85!