insider secrets to customer prepayments in quickbooks · insider secrets to customer prepayments in...
Post on 04-Jun-2020
0 Views
Preview:
TRANSCRIPT
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 2
This guide was written to share basic information about recording customer prepayments in
QuickBooks. This guide is not intended to replace the services of a competent accounting
professional. If accounting expertise is required, it should be sought. Furthermore, while the
author and publisher have made every effort to offer the most current, correct, and clearly
expressed information possible, inadvertent errors can occur, and the rules and regulations
regarding accounting for businesses can change. The author and publisher assume no
responsibility for the accuracy of any transaction posted in any QuickBooks file as a result of
this guide.
QuickBooks and QB are registered trademarks of Intuit, Inc.
Published by:
Jennifer A. Thieme, Inc.
P.O. Box 3303
Vista, California 92081, USA
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 3
Table of Contents
� About the Author, p. 4
� Introduction, p. 5 � Two Methods? p. 5 � Revenue or Prepayment? p. 6
� Special Note on Printing, p. 7
� Method #1 – the Traditional Method, p. 8
� Setup QB for the Traditional Method, p. 11
♦ Step 1 – Create a New Account in the COA, p. 11 ♦ Step 2 – Setup Your Item, p. 13
♦ Step 3 – Create a Customized Sales Receipt, p. 16 � Using the Traditional Method in QuickBooks, p. 19
♦ Recording Prepayments, p. 19
♦ Determining Customer Prepayment Balances, p. 21
♦ More about QuickReports, p. 24 ♦ Retainer to Revenue, p. 25 ♦ Double Check Your Work, p. 27
♦ Advantages & Disadvantages to this Method, p. 28
� Method #2 – the Modern Method, p. 30 � Special note to CPA’s and other accounting professionals,
p. 30
� Record the Prepayment, p. 33
� Prepayment to Revenue, p. 35
� Year End Journal Entries, p. 38 � Advantages & Disadvantages to this Method, p. 45
� Handling Refunds for Cancelled Jobs with Method #1, p. 47
� Handling Refunds for Cancelled Jobs with Method #2, p. 51
� Prepayments vs. Vendor Costs Using Method #2, p. 56
� Which Method Should You Use? p. 60
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 4
About the Author
Jennifer A. Thieme is a Certified QuickBooks ProAdvisor who
offers QuickBooks training, bookkeeping, and income tax services
to clients throughout the United States.
Do you want personal help with QuickBooks? Contact Jennifer
today by visiting:
http://www.jenniferthieme.com/quickbooks-help-contact.html
>>> Looking for Free QuickBooks Help? <<<
Sign up for Adventures in QuickBooks, Jennifer’s free monthly
ezine about QuickBooks. Get unique tips, tricks, and how-to’s for
QB delivered to your inbox monthly:
http://www.jenniferthieme.com/quickbooks-help-free-ezine.html
More free QuickBooks help is available at Jennifer’s website. Lots
of free QB articles, tips, and advice, most of it written by Jennifer:
http://www.jenniferthieme.com
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 5
Introduction – Two Methods?
Did you know that there are two ways you can record
customer prepayments in QuickBooks?
Yes, that's right. There are two ways, not just one. I'm
going to walk you through both ways in this paper, step-
by-step.
Which way should you use? Do two things:
1. Read through this entire ebook. You must be familiar
with each way before deciding.
2. Have your CPA read through this ebook to help you
decide. There are very practical considerations for each
way that I will address, and these must be considered
carefully before choosing.
Very Important Note – Must Read!
Do not combine these ways. Choose one or the other - do
not do both for the same time period.
You may do one for a certain time period, such as a year,
then you may switch. But be careful about switching...
this will pose problems if not done correctly. For best
results, choose one method and stick to it.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 6
Revenue or Prepayment?
"Why can't we just record these as regular revenue and
make life easier?"
>>> Important: consult with your CPA or other
accounting professional to determine whether or not
this money is revenue or a prepayment. If it’s a
prepayment, also get advice as to WHEN it should be
recorded as revenue. <<<
Money is “revenue” when it is payment for services or
products rendered. If services or products are to be
rendered in the future, then the money is not “revenue”
until the services or products have been rendered.
"Prepayments" or "retainers" means that the client paid
you in advance for work not yet performed. Since you
have not performed the work, generally it's not taxable
revenue. If it’s not taxable revenue, the money should
get recorded on the Balance Sheet when you receive it,
not on the Profit & Loss statement. This way, the money
is not taxable until you have actually performed the
work. Then when the work has been completed, the
retainer becomes revenue. It gets moved from the
Balance Sheet to the P&L.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 7
The following pages show the two methods for
recording this type of transaction. I’ll show you:
1. Step-by-step instructions for each of these methods.
2. Financial statement impact – what happens to the
financial statements at each step.
3. Advantages and disadvantages for using each method.
Special Note for Printing – Optional:
You may want to print these instructions on a color
printer. There are lots of color graphics with red
highlighting. They show best when printed on a color
printer, but not so well when printed in black and white.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 8
Method #1: The Traditional Method
I'm calling this The Traditional Method because this is
method records the prepayment directly into the Other
Current Liability account. As such, it’s a more traditional
approach and does not take into account the ease of use
of the modern day convenience of a program like
QuickBooks. It’s quite likely that most CPAs will prefer
this method.
Sidebar: this is the same basic method given within the
internal QuickBooks help of the program. I’ve written my
own version of these same instructions. My process is
very similar, but not exactly the same. Plus I include
important pieces of information that are not included in
QB, such as…
• Financial statement impact at each step
• Screen shots to help you see what’s going on
• Customized Sales Receipt instructions
• Advantages & Disadvantages to this method
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 9
Why I included this method
I’ve included this method in this guide to help you
compare the two methods, and to include more
information that what’s available in the internal QB help.
Once you compare the two methods side-by-side, and
get your CPA’s input, you will be better able to decide
which method is the best for your business.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 10
Overview of Method #1
First we will setup QB to use this method. There are
several things in QuickBooks that must be set up
correctly before this method can be used:
• An Other Current Liability account in the Chart of
Accounts.
• A "Service Item" in the Item List.
• A customized Sales Receipt (this is optional, but it's
nice to have and easy to create).
Then we will walk through, step-by-step, how to actually
use this method.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 11
Set Up QB for the Traditional Method
3 Steps
Step 1 - Set Up the Other Current Liability Account in
the Chart of Accounts
Go to the Chart of Accounts and create an Other Current
Liability account called Client Retainers.
The specific instructions to setup new accounts in QB
vary slightly from year to year, but the general idea is to
go to the Chart of Accounts and press Control-N. This
opens a New Account window. From here choose Other
Current Liability, setup the name as "Client Retainers" or
"Customer Prepayments" or something similar. Do not
enter an opening balance. Enter an account number if
your company uses account numbers. You may assign a
Tax Line, if you know which tax line to use (and if you
export QB data into tax preparation software). If not,
then don't setup a Tax Line. Click Ok.
The next page shows a graphic of the Add New Account
screen. This is for QuickBooks 2008 – earlier versions of
QuickBooks look a little different, but the idea is the
same.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 12
Notice the items circled in red. The one on the left shows
the type of account being selected. The one on the right
show’s QB’s description of this account.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 13
Step 2 - Set Up New Item in the Item List
Go to the Item List. Once there, press Control-N. This
opens the New Item window. Select Service as the Item
Type. Tab to the Item Name. Enter "Client Retainers" or
"Prepayments" as the name of this new Item. Tab to the
Account, and select the Other Current Liability account
you just created above. You can enter a description if you
wish. You do not need to enter a rate, but you can if you
charge the same rate for all client retainers.
The next page shows a graphic of the New Item setup
screen, and the Other Current Liability account being
selected in the Account drop down box.
Notice the item circled in red. It is the Other Current
Liability account you created in the previous
step.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 14
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 15
Caution #1- If you already have accounts or items set up
for retainers: take particular care that they are set up as
I describe here before using them further. Common
mistakes I see are...
• The item is pointing to a revenue account, not
another current liability account.
• The retainer account in the Chart of Accounts is an
"Income" type, not an "Other Current Liability" type.
Caution #2: If your current items or accounts are set up
incorrectly, do not change them, particularly if they've
ever been used in any transaction. Instead, set up new
ones as I describe here. Alter the names of the old items
or accounts and make them inactive so that you are not
tempted to use them again.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 16
Step 3 - Set Up a Customized Sales Receipt
This step is optional, but it's nice because it makes the
Sales Receipt look like it's specifically for Client Retainers.
You can use a generic Sales Receipt if you wish, but why
do that when we can spend a few moments and modify
one specifically for client retainers? It looks much more
professional than a generic one, because after recording
the retainer, you can (and probably should) send a copy
of the receipt to the client.
Go to the Sales Receipts screen by following this path:
Customers > Enter Sales Receipts
The instructions for this vary slightly, depending on
which year of QB you use. But this will get you going in
the right direction.
1. Near the top right corner, click the Customize
button.
2. Click the button called, “Manage Templates.”
3. Highlight one of the Sales Receipts here. Click the
button that says, “Copy.” QB makes a copy of it, and
calls it Copy of: Sales Receipt. Click Ok.
4. Click Additional Customization. Make sure you are at
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 17
the Header tab. Change the Default Title to Receipt
for Client Retainers (or some other appropriate
name). You might need to click the Layout Designer
tab to adjust this name so it fits correctly on the
form.
5. Click Ok until you are out of these screens and back
at the form. You should now see the new name at
the top of the form.
Even though we changed the name, it is still a "Sales
Receipt." We have not changed its basic function.
Examine the new Sales Receipt. Instead of saying Sales
Receipt, it now says Receipt for Client Retainers (or
whichever name you gave). This is a more accurate
description of how the form will be used, although, as I
already mentioned, a generic sales receipt will perform
the same bookkeeping tasks.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 18
Here’s a graphic showing one step in this process. This
screenshot was taken from QuickBooks 2008 – earlier
versions of QB will look a little different. Notice the
yellow boxes – the one on the left shows where you
enter the new name. The one on the right shows how QB
sees it.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 19
Using the Traditional Method in QB
Now that we have QuickBooks setup for this method,
here is how to use it.
When it's time to record money received from a client
that is a retainer or prepayment, use the "Receipt for
Client Retainers" by following this path:
Customers > Sales Receipts > then, if necessary, select it
from the drop-down box immediately under the
Customize button in the top right corner. Then:
• Enter the customer name in the top left corner
• Tab to the Date field. Enter the date the retainer was
received.
• Tab to the Check Number field. Enter a check
number if the client paid by check. If not, leave
blank.
• Tab to the Payment Method field. Enter the payment
method.
• Tab to the Item field. Enter the Retainer item you
created above.
• Tab to the Description field. Enter a description.
• Leave the Quantity field blank. Tab to the Rate field.
Enter the amount of the payment.
• You may enter any other information as needed.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 20
When finished, save the transaction.
Recommended: email or mail a copy of this to your
client.
What Did We Just Do? How Were the Financial
Statements Affected?
We did two things with this transaction:
1. We told QB that cash was received – the amount of
cash has increased on the books. It is now either in
Undeposited Funds or in a bank account (depending on
your Preferences).
2. We recorded money onto the Balance Sheet in the
Other Current Liability Account created above. Run a
Balance Sheet and notice it there (be sure the date range
is correct).
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 21
How to Determine Client Retainer
Balances with Method #1
As time goes on, it will be important to know the retainer
balances of your clients. Here is how to determine them
using the Traditional Method.
Go to the "Client Retainers" other current liability
account in the Chart of Accounts. Highlight it, right click,
and select Use Register. Find any transaction with the
particular customer whose balance you wish to know.
Highlight the customer, right click, and select
QuickReport. QB creates a report showing all of this
customer's retainers paid and used for a particular date
range. Adjust the date range if needed.
Positive amounts = retainers received (and placed on the
Balance Sheet). Negative amounts = retainers used (and
moved from the Balance Sheet to the P&L if done
correctly).
When this QuickReport is run, QuickBooks gives it a
generic name, "Register QuickReport." Sometimes you
may wish to print this report and keep it in a file or send
it to your client. You can easily change the name of the
report by clicking the Modify Report button. Go to the
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 22
Header/Footer tab. The second field is called, "Report
Title." Give the report an appropriate title, such as
"Retainer Balance for John Doe."
The graphic below shows a QuickReport run for the
entire Client Retainer account, and shows all transactions
in that account.
Look at the customer “Cheknis, Benjamin.” He paid
$5,000, and it was recorded on 12/15/2011 via a Sales
Receipt. Then, on 1/31/2012, an invoice was generated
for him, and his $5,000 retainer was applied. Notice the
title. I changed it to say, “Client Retainers.”
Below is another graphic showing a QuickReport for a
single customer, Benjamin Cheknis. I created this by
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 23
following these steps:
• Navigate to the Client Retainers account in the COA
• Open the register (right click, select Use Register)
• Navigate to the customer’s name, highlight it
• Right click, choose QuickReport. Notice how I
changed the title of the report from “Register
QuickReport” to “Benjamin Cheknis.”
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 24
More about QuickReports:
• You may add or subtract columns by selecting them
in the Display tab.
• You may memorize this report, so that QB calculates
it for you. Once you run the report and have
modified it the way you want to see it, press Control-
M, and the Memorize Report window opens. Save
the report here, or select a subfolder to put it in. To
run it, follow this path: Reports > Memorized
Reports. It will either be in this list, or in one of the
subfolders here.
• I highly recommend memorizing these types of of
specialized reports if you run them often.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 25
Retainer to Revenue - Time to Show it
as Revenue
You've done the job for the client - the work is finished.
Now it's time to move the retainer from the Balance
Sheet to the P&L. Another way to think of it is that we
are going to move it from the Other Current Liability
account, to a Revenue account.
• Go to the Invoice screen (Control-I). Fill in the
customer name, date you wish to show this job as
revenue, and other information as needed. Tab to
the Item field.
• Select the appropriate Item that matches the type of
revenue for this customer or job. I assume these are
already set up - setting up these types of items is
beyond the scope of this article.
• Fill in the revenue amounts, as appropriate.
• At the last line, select the Retainer item, and fill in
the amount of the retainer as a negative amount.
• Notice the Balance Due. If the Retainer is less than
the Revenue, there will be a balance due. If the
Retainer is equal to the Revenue, the Balance Due
will be zero. If the Retainer is more than the
Revenue, QB will not allow you to save the
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 26
transactions - negative invoices are not allowed in
QB. You will need to adjust the Retainer or Revenue
to fix it.
If the client paid the total upfront, this will create a zero
balance invoice.
If the client did not pay the total amount up front, then
this invoice will show a balance due. Save the
transaction, and invoice your client as you normally
would.
What Did We Just Do? How Were the Financial
Statements Affected?
Using the Retainer item on the invoice as a negative
amount, along with one or more of your regular items as
positive amounts, does two things:
• The amount in the Other Current Liability account on
the Balance Sheet has been lowered by the amount
used on the Retainer item on the invoice.
• The full amount of revenue was recorded on the P&L
by using items pointing to revenue accounts on the
invoice.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 27
Double Check Your Work
It’s important to double check your work. You want to
make sure everything is posting correctly. Catch your
mistakes now – they’re easier to correct now than if you
wait until tax time!
1. To verify that the retainer has been used by a
particular customer, follow the instructions above for
"How to Determine Client Retainer Balances."
2. To verify the entries for revenue, run a P&L. Verify the
date range. The revenue will post to whichever accounts
were established for those regular items you used on the
client's invoice. If you are unsure which accounts were
used, go to the Item list, choose an item to examine,
highlight it, right click, and select Edit Item. In this screen,
you can see which account this Item posts to. It should
be a Sales account. (Note that the terms Sales, Income,
and Revenue can be used interchangeable in this
context.)
3. Run an Item report on the items used on the sales
receipts and/or invoices. Do this by going to the Items
list, find an item you want to examine, right click, and
select QuickReport. This will show every transaction
where this item was used for a particular date range.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 28
Advantages & Disadvantages to this
Method
Advantages to the Traditional Method
1. This method follows traditionally accepted
accounting principles by placing the money directly
into the Other Current Liability account when it is
received. From an "accounting principles"
standpoint, this is the correct area for these types of
funds.
2. Having the customized Sales Receipt looks very
professional, and you can send it to your customer
for his/her records.
Disadvantages to the Traditional Method
I have found that this method is confusing and difficult
for people who are not accountants or advanced-level
bookkeepers. Here's why:
1. People do not understand why a "Sales Receipt" is
used - it's not a sale.
2. They don't understand the concept of "Other
Current Liability," nor do they understand the
function of the Client Retainer item.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 29
3. They don't remember how to determine the client
retainer balances, since all prepayments are lumped
together into a single “other current liability”
account. This is extremely important and a huge
roadblock for most people using this method.
4. Because they can't remember how to determine
client retainer balances, they get lost when it's time
to generate an invoice for the client - they don't
know how much of a retainer to show on the
invoice.
Because of these drawbacks, I developed another
method for client retainers, something I’m calling the
Modern Method.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 30
Method #2 - The Modern Method
After working with clients, I developed this method that I
call the Modern Method for recording customer
prepayments. It’s very practical, and requires little effort
from current QuickBooks users. They don’t have to learn
new procedures or instructions, and QuickBooks does
not have to be setup in a special way. It makes sense to
people, and because it makes sense, they use this
method very easily.
Special note to CPAs and other
accounting professionals:
In this method I teach people how to record the
prepayment as a negative receivable, and also how to
make year-end journal entries to move the money from
A/R to a liability account.
In the event that some of you object to the money being
recorded as a negative receivable, I’d like to explain my
rational for legitimizing it:
1. Many QuickBooks users are already recording
prepayments as negative receivables. Why not make
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 31
sure they are doing it correctly, and also teach them
how to move the money from A/R to a liability
account when it really matters (like at tax time or
when applying for a loan)?
2. Because many of them are already doing it this way,
it will be hard to successfully convert them to
Method #1. Method #1 is confusing to non-
accountants.
3. It’s very easy to record and use prepayments this
way, so mistakes and “clean up” will be less.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 32
Note to those receiving prepayments in order to make
future purchases for customers:
Please scroll down to page 56, to the section called,
“Keeping Track of Prepayments vs. Vendor Costs Using
Method #2.” I have added some instructions and altered
the work order so you can keep track of the prepaid cash
more easily.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 33
Recording Customer Prepayments Using
the Modern Method
When you receive a prepayment from a customer:
1. Go to the Receive Payments screen:
Customers > Receive Payments
Enter the customer information as you normally would.
Enter the amount paid, as well as the payment method,
date, etc.
2. If there are open invoices for this customer, they will
be displayed in the lower half of this screen. Make sure
this payment is NOT applied to any of them. The screen
should look like an unapplied customer payment – that’s
what it is.
3. Save the transaction.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 34
What Did We Just Do? How Were the Financial
Statements Affected?
We did two things:
• We created something called "a negative
receivable". If you run an A/R Aging report, you will
see this there (Reports > Customers & Receivables >
A/R Aging Summary). If you run a Balance Sheet, the
amount for Accounts Receivable will be lowered by
this amount.
• We told QB that cash was received, so the cash
balance is higher in either Undeposited Funds or
your bank account.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 35
Prepayment to Revenue - Time to
Record the Sale
When you've done the work for the customer:
1. Create an invoice as you normally would, using the
normal items you would use.
2. When the invoice is done, click the Apply Credits
button.
The next page shows a graphic of the Apply Credits
screen. The customer’s prepayment is circled in red.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 36
3. Select the prepayment. QB applies it.
4. Save the invoice. Send a copy of the invoice to you
client if needed. The next page shows a graphic of how
the bottom of the invoice looks after the prepayment has
been applied.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 37
What Did We Just Do? How Were the Financial
Statements Affected?
• We recorded revenue on the Profit & Loss statement
via the items on the invoice.
• We raised amount that the client “owes” by clicking
the Apply Credits button and applying the
prepayment. The client's A/R balance has been
raised (remember, in most cases the client’s balance
was a negative amount. We just used that money, so
now it's probably at a zero balance).
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 38
Year End Entries Needed for Tax Time or When
Financial Statements are Submitted for Other
Reasons (such as a loan)
If there are unapplied/unused customer prepayments as
of the end of the tax year, these need to be moved to the
Liability section of the Balance Sheet so that the tax
returns will be correct. There are four steps to do this:
• We'll create an Aging report to help us
• We'll create a journal entry as of the end of the year
for each customer, to move the money from A/R to
Liabilities
• We'll create another journal entry as of the first day
of the next year, to move the money back to A/R
(aka "a reversing entry")
• We'll apply these two journal entries to each other
so they will “disappear” from the aging report.
1. Create an aging report as of the end of the year.
Modify it so it shows only payments:
Reports > Customers & Receivables > A/R Aging
Summary
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 39
• Click the Modify Report button
• Click the filters tab
• Select Transaction Type, then select Payment from
the drop-down box
• Select Paid Status as Open
• Click Ok
• Print this report.
Here’s a graphic showing the Filter’s tab, the
Transaction Type, and the Payment being selected.
2. Draw three columns along the far right side of this
report. Label them as follows:
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 40
• 12/31 1st JE
• 1/1 Reversing JE
• Applied to Each Other
3. Go to the General Journal:
Company > Make General Journal Entries
Using the Total for each negative amount in the Aging
report, create a journal entry for each individual
customer effective the year end date (usually 12/31).
Debit Accounts Receivable for the amount, and credit an
Other Current Liability Account called "Client Retainers"
or something similar. Do this for each individual
customer. As you work, place a checkmark in the first
column next to each customer. This helps you to avoid
duplicating your work. QB will force you to assign a
customer name in the journal entry - do this for both
lines. QB only allows one entry for each customer on an
A/R account. Here’s a graphic showing how it should
look.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 41
Next, create the reversing entries effective on 1/1 of the
next year. Debit the Other Current Liability Account, and
Credit Accounts Receivable. QB will force you to assign a
customer name - do this for both lines. Again, in the
column labeled “1/1 Reversing JE” place checkmarks next
to each name as you work. Here’s another graphic
showing how the entry gets reversed on the next day.
Last, apply these two entries to each other.
Important: If these two journal entries are not applied
to each other, they will remain forever on any A/R
Aging reports.
Go to the Receive Payments screen:
Customers > Receive Payments
With the Aging report in front of you, enter the first
customer's name. QB will display the first journal entry in
the lower half of the screen. The second journal entry is
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 42
located in the Discounts & Credits button. Click it - the
Apply Credits window opens. Locate the second journal
entry there and select it. You may need to apply it to the
first journal entry, or QB may do it for you - depends on
the other information on this screen.
Here’s a graphic showing the first journal entry in the
yellow box. This is how the screen looks immediately
after you type in the customer’s name (if there are no
other open invoices):
Click the Discounts & Credits button - here’s a graphic
showing the second journal entry located in the Apply
Credits window:
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 43
Repeat this for all customers on the A/R Aging report.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 44
Important: only these two entries should get applied to
each other here - do NOT apply these to any other
invoices or other activity – apply only the two journal
entries to each other here!
What Did We Just Do? How Were the Financial
Statements Affected?
• We raised Accounts Receivable and raised Client
Retainers as of 12/31. Verify this by running a
Balance Sheet for 12/31.
• We lowered Client Retainers and lowered Accounts
Receivable as of 1/1. Verify this by running a Balance
Sheet as of 1/1.
• We applied these two A/R entries to each other so
that they won't show up on the A/R Aging reports
forever.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 45
Advantages & Disadvantages to this
Method
Advantages to the Modern Method
• Most QuickBooks users find this method extremely
easy to use in their day-to-day activities. Recording
the prepayment and applying it to an invoice require
no new skills or understanding.
• Determining customer balances is a snap - simply
look at the customers' A/R registers:
Customers > Customer Center > highlight your
customer > right click > Enter Statement Charges
Disadvantages to the Modern Method
• Some CPAs may object to this method since it lowers
Assets on the Balance Sheet throughout the year.
• The year-end journal entries appear in the
customers’ registers and on their statements.
• Recording the Year End Journal Entries requires
advanced skill. It should be done by somebody who’s
very knowledgeable in QuickBooks and who also
understands accounting principles (financial
statements, debits/credits, etc.).
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 46
• There’s no customized Sales Receipt to send to your
customers when they’ve issued the prepayment to
you.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 47
Handling Refunds for Cancelled Jobs
with Method #1
If your customer decides to cancel the job, determine
how much of the prepayment to refund. You may first
want to determining the customer’s prepayment balance
by following the instructions on pages 9-10.
To Refund the Entire Prepayment
Go to the Write Checks screen (press Control-W) and
issue a check to this customer. Enter the amount of the
refund. In the lower half of the screen, click the Items
tab, and select the Client Retainer item you created on
page 6. Enter the amount of the refund in the Amount
column. Enter the customer’s name in the Customer:Job
column. Issue the check as you normally would.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 48
FAQ: Why use an Item here, why not use the Expenses
Tab?
Since an Item was used to record receipt of the
prepayment, I think it’s a “best practice” to use an Item
again for the refund. When a report is generated for this
Item, it will show both the receipt of money, and the
refund. Makes for a better audit trail for this Item.
To Refund a Portion of the Prepayment
If you decide that your customer owes you a portion of
the prepayment, you will need to refund what is left
over.
Create an invoice as you normally would. Enter the
revenue item(s) and amounts as you normally would.
Enter the Client Retainers item created in page 6, and
enter the amount that you will keep as a negative
amount in the Amount column.
Generally, in this instance you will probably want to have
a zero “balance due” in the lower right area of the
invoice. In other words, your revenue items will probably
equal the negative retainer amount.
Keep in mind that if there is a balance due here, then
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 49
your customer will owe you money.
Enter any other information as needed. Save the
transaction.
Notice on the graphic below how the Client Retainers
item is used, and how the amount is negative. Also
notice how it’s a zero balance due invoice.
Issue the actual refund by determining the customer’s
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 50
prepayment balance as described on pages 9-10, then
issue a check by going to the Write Checks screen (press
Control-W). Enter the customer’s name, date, check
number, and the amount of the refund. In the lower half
of the screen, click the Items tab, and select the Client
Retainer item you created on page 6. Enter the amount
of the refund in the Amount column. Print the check (or
hand-write it if you use hand written checks).
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 51
Handling Refunds for Cancelled Jobs
with Method #2
If your customer decides to cancel the job, determine
how much of the prepayment to refund. You may first
want to determine the prepayment balance. Do this by
going to the customer’s A/R register:
Customer List > highlight the customer > right click >
select Enter Statement Charges
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 52
Scroll through the register to find the prepayment and to
see if any invoices were applied to it. Once you’ve
determined the prepayment balance…
To Refund the Entire Prepayment
Go to the Write Checks screen (press Control-W) and
issue a check to this customer. Enter the amount of the
refund. In the lower half of the screen, under the
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 53
Expenses tab, select Accounts Receivable. QB should
enter the amount automatically. Tab over to the Name
column and enter the customer’s name. Issue the check
as you normally would.
Then, apply the refund to the prepayment. Go to the
Receive Payments screen:
Customers > Receive Payments
Enter the customer's name. QB will display refund in the
lower half of the screen. Click the Discounts & Credits
button. You will see the customer’s prepayment in the
Apply Credits box. QB should select it automatically – if
not, then put a checkmark next to it. Click Done to close
this window.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 54
Notice the refund check under the “Orig. Amt.” column,
and the prepayment in the “Credits” column. The entire
transaction has a zero effect – we’re just applying these
two transactions to each other so they won’t continue to
show up on the A/R Aging reports.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 55
To Refund a Portion of the Prepayment
If you decide that your customer owes you a portion of
the prepayment, you will need to refund what is left
over. The portion you keep is now revenue. Here’s how
to record it.
Create an invoice as you normally would. Enter the
revenue item(s) and amounts as you normally would.
Click the Apply Credits button. If there are other credits
for this customer, make sure you select the prepayment.
QB will apply the prepayment up to the total amount on
the invoice. This leaves the balance of the prepayment to
be refunded in the next step. Click Done, then save the
invoice. It’s probably a good idea to create a zero balance
invoice here, and not a ‘balance due’ invoice. Otherwise
it could be confusing to your customers – you’ll refund
part of their money, but also generate an invoice for
them.
To refund the rest, go to page 28 and follow all of the
instructions for Refunding the Entire Prepayment (except
you aren’t refunding it all, just what is left over after the
invoice).
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 56
Keeping Track of Prepayments vs.
Vendor Costs Using Method 2
Overview
Sometimes customers prepay, and they need to take that
money and buy items for the customers. It’s important to
keep track of that cash, as you don’t want to spend it on
other things. This is considered an accrual function.
Although QuickBooks allows you to run reports on an
Accrual basis, QuickBooks is not for heavy-duty accrual
reporting – it’s definitely “light-duty accrual,” at best.
I’ve developed a non-traditional work order so people
can take advantage of the ease-of-use that QuickBooks is
famous for, while still getting the important information
they need in this situation.
Note: this work order/method does not work if
“Inventory Items” are used. This is because “Inventory
Items” record the cost on the P&L when the customer’s
invoice is entered in step 6 below, not when the vendor
bills are entered in step 4 below. Use any other type of
Item for these instructions to work.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 57
Alternate Work Order for
Keeping Track of Prepayments vs. Vendor Costs
These instructions work best with QuickBooks Premier or higher.
QuickBooks Pro cannot turn an Estimate into a vendor Purchase Order,
which is required in Step 3 below.
If you use QuickBooks Pro and need to monitor vendor costs against
customer prepayments, consider upgrading to QuickBooks Premier (link
takes you to the Intuit website where you can purchase QuickBooks
Premier and download it immediately):
http://tinyurl.com/66yeqw
Important: these instructions assume you will be using any Item type
except “Inventory.” “Inventory” items will not work with these
instructions. See the FAQ on page 64 for the explanation why.
1. Create an Estimate or Sales Order for your customer
for the full amount of the sale. Set up the new
customer if necessary.
Customers > Create Estimates (or Sales Orders)
2. Receive the payment from your customer. This step
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 58
may happen later if you have not received the
payment yet.
Record this in the Receive Payments screen as you
would for a normal payment. Be 100% certain this
payment is not applied to any existing invoices. This
will create a negative balance in the customer’s A/R
register as explained above in “Method #2 – The
Modern Method.” You will need this figure later.
Customers > Receive Payments
3. Go to the Estimate or Sales Order and create vendor
purchase orders for the goods you will buy – send
the P.O.s to your vendors if appropriate:
Vendors > Create Purchase Orders
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 59
4. Receive the goods and vendor bills – enter these into
QuickBooks. This is when the costs are recorded on
the books. Do not mark the items as Billable:
Vendors > Enter Bills > when prompted, choose the
P.O. QuickBooks populates the Enter Bills screen
with the information from the P.O. Save.
5. Each time you enter a vendor bill for this customer,
run a Job Profitability Detail report to see where you
stand with your costs:
Reports > Jobs, Time, & Mileage > Job Profitability
Detail > choose your customer > Click Ok
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 60
QuickBooks creates the report and you can see the
costs so far.
Important: the revenue will be zero because we
have not recorded any yet. The revenue is recorded
in Step 6 below when we create the invoice.
Subtract the costs on this report from the
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 61
prepayment located in the customer’s A/R register:
Customer Center > scroll to the customer > highlight
the customer > in the Show box select Received
Payments > Filter By All Payment Methods > Make
sure the date range is correct.
The difference between the prepayment and the
costs is what you have not yet spent.
Once you have recorded all of the vendor bills for
this job and are ready to close the job…
6. Go to the original Estimate or Sales Order and create
a customer Invoice from it by clicking the Create
Invoice button at the top of the screen.
7. Once the invoice is created, apply the prepayment to
it by clicking the Apply Credits button located near
the bottom right of the invoice.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 62
A new window opens called Apply Credits and you can
select the prepayment there.
Assuming the invoice equals the prepayment, once the
prepayment has been applied to the invoice it closes
the job and records the revenue shows on the books
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 63
for both accrual and cash basis reporters.
For Accurate Gross Margins…
One of the problems with this method is that the gross
margins may not be accurate on the P&L.
If possible try to record the vendor bills and
corresponding customer invoices in the same month,
as this will create accurate gross margins - the costs
will be matched with the revenues for the reporting
period. Sometimes it won’t be possible, but sometimes
it will. So keep it in mind as you use these instructions.
Talk to your CPA to find out if this is a significant issue
for you, as it may or may not be.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 64
FAQ: Do I have to enter the vendor P.O. if I don’t need
to?
Answer: Yes and no. It depends on what you can
remember.
I strongly suggest using P.O.s in this instance, because
they require Items. Items are required in order for the
Job Profitability Detail report in step 5 to be accurate.
If you can remember to always use Items, you may
directly enter the vendor bill without first creating a
P.O., but always click the Items tab and use Items. Do
not use the Expenses tab in this instance as it will not
reflect on the Job Profitability Detail report in step 5.
Also, creating P.O.s ensures that all of the Items on the
original Estimate or Sales Order are accounted for –
makes for a good audit trail.
FAQ: Why can’t I use Inventory Items with these
instructions for tracking vendor costs against customer
prepayments?
Answer: Inventory items will not show on the Job
Profitability report (Step 5) until the close of the job
when the customer’s invoice is created in Step 6.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 65
When vendor bills are entered for “Inventory” items,
they are shown as assets on the balance sheet, not as
costs on the P&L. They get recorded as costs on the
P&L when the customer’s invoice is created. This is not
an error or mistake on the part of QuickBooks – this is
the correct way to show cost of goods sold for
inventory.
Other types of items are shown as costs or expenses
on the P&L when their respective vendor bills are
entered. This is why it’s important to use other types
for these instructions.
Insider Secrets to Customer Prepayments in QuickBooks
Copyright 2008-2010 Jennifer Thieme – All Rights Reserved
Visit http://www.GetMoreFromQuickBooks.com
QuickBooks and QB are registered trademarks of Intuit, Inc.
Page 66
Which Method Should You Use?
Choose a method you feel comfortable with, but be sure
to get your CPA’s input. This is an important decision,
and your CPA may have considerations I have not
addressed here.
Ultimately it depends on your own skill level. If you
decide on the Traditional Method, be sure to have your
CPA look over your financial statements periodically to
make sure everything is going smoothly.
If you decide on the Modern Method, you can easily use
this throughout the year without oversight. However,
making the year-end adjusting entries is CRUCIAL, and I
don’t recommend you do it yourself. Let your CPA or
other QuickBooks professional do it for you.
Talk to your CPA or other accounting professional and
get his/her opinion as to which method is best for your
unique situation and skill level.
top related