Customer Prepayments/Deposits

[katrina22]

Originally Posted by PennyLane

Here's my blog article on the subject:

An easier to read version :

http://www.quickbooksnow.com/2010/04...omer-deposits/


Handling Customer Deposits in QuickBooks

Many businesses who receive deposits from customers are not aware of how to process these payments properly.....

ADDITIONAL TEXT DELETE TO REDUCE LENGTH OF QUOTE

........Don’t let the long explanation deter you. The process is actually very simple to follow, and helpful for those who receive deposits from Customers on a regular Basis.

Penny,

Thanks for posting this! It's exactly what I was looking for on all fronts.

My only question is (and it may be answered by re-reading your post, so forgive me if that's the case) that we don't really want to send the Estimate to the customer with the pre-payment amount already noted on the estimate as if they've already paid it. (Granted in our instance, being that we usually ask for a 50% deposit, the total at the bottom of our estimate will be the same as the amount we're saying has been pre-paid, but that's just a coincidence). The customer always wants a proforma invoice detailing all the items before they then send us the deposit. So what I'm thinking of doing is sending them the estimate with a line item being just a note requesting 50% of the invoice total to process the order... THEN when we receive the deposit... amending the estimate the way you've described and follow your guidelines... does this sound about right/OK?

One thing that I'm finding frustrating is that when I create the estimates, it pre-populates the item details based on my item number, but NOT the item price..... (in fact, i think you may have answered another of my posts questioning why estimates didn't show item details, but i guess, what i was having trouble with - but had forgotten - was actually the item costs/prices.... any ideas on this???

Thank in advance,

Katrina

PS) I just did a little test run, and i have a few questions:

1) after i create the Estimate, if i then go to the invoices and go to create a new invoice, nothing pops up to tell me that customer has an outstanding Estimate. (This is when i don't want to create the invoice from directly within the open statement)
2) i created a sales receipt also, and there's no automatic entry of a deposit on any new invoice i create for that customer.

I'd be very grateful for any additional light you can shed for me on this

[PennyLane]

I'm glad you found it helpful.

Do you have progress invoicing turned on? Edit-preferences- jobs and estimates. Click the radio button for progress invoicing. If that's turned on,you should definitely have something pop up with an open estimate when you go to create the customer invoice.

I admit that I am having trouble following the entire thread, but IF you are billing the customer 50% up front AND the time period between the "deposit" and the final invoice is not very long... you may just want to bill the customer outright 50%? Just a thought.

Back to the deposit scenario. What you do is send the customer the estimate- not showing any payments and at the same time create an invoice for the 50% using the 'deposit" item. Then go ahead and put the deposit item as a negative on the estimate - presuming they pay the deposit.

If you have progress invoicing turned on and you have the deposit entered as a negative on the estimate, when you go to create invoices for this customer, you should get a window showing the estimate. When you create an invoice for that estimate, the deposit item will show as a negative, thereby creating an invoice to the customer for the balance due and clearing out the deposit liability.

[katrina22]

Originally Posted by PennyLane

I'm glad you found it helpful.

Do you have progress invoicing turned on? Edit-preferences- jobs and estimates. Click the radio button for progress invoicing. If that's turned on,you should definitely have something pop up with an open estimate when you go to create the customer invoice.

I admit that I am having trouble following the entire thread, but IF you are billing the customer 50% up front AND the time period between the "deposit" and the final invoice is not very long... you may just want to bill the customer outright 50%? Just a thought.

Back to the deposit scenario. What you do is send the customer the estimate- not showing any payments and at the same time create an invoice for the 50% using the 'deposit" item. Then go ahead and put the deposit item as a negative on the estimate - presuming they pay the deposit.

If you have progress invoicing turned on and you have the deposit entered as a negative on the estimate, when you go to create invoices for this customer, you should get a window showing the estimate. When you create an invoice for that estimate, the deposit item will show as a negative, thereby creating an invoice to the customer for the balance due and clearing out the deposit liability.

Hi Penny,

Thanks for responding. As an FYI I am not the original poster, so the above post was my first in this thread :-)

As for turning on Progress Invoicing - that's probably it - but I am using Quickbooks for Mac 2010 and it isn't immediately obvious where to find that setting. I'll keep looking now.

In your scenario described in your response above... if i create the negative deposit item on the Estimate, do i still have to create a sales receipt in order for the deposit to show up on the invoice generated afterwards? I'm guessing yes n order for it to deposit into the bank and affect the sales income....?....

By the way, when one creates an Invoice from an Estimate, does it delete that Estimate from the 'Estimate' area, so that it doesn't get used again?

Katrina

EDIT: I just found the following discusson which indicates that Progress Invoicing is not available in QB for Mac 2010. What a complete dissapointment :-((

http://www.qblittlesquare.com/2010/0...-2010-for-mac/

I suppose I will continue to do what we were already doing which is creating an estimate with a note on it that they owe 50% of the total, send it to them, and when they send the deposit we'll just deposit it as unallocated fund (the way you say you see many people do it incorrectly). Then when it comes time to collect the deposit, we'll just create a final invoice and statement showing they've already paid 50%. It'll all work out, i just liked the way you described it should work, so as to catch where things might get overlooked - especially if someone else is doing the books one day....

[PennyLane]

Oh, I see. It's a long thread.

QuickBooks for MAC .... I can't recall where the preferences are for that! I just did it the other day, but I don't have a mac and I don't remember. I think it might be under company or something.

Anyway, the Estimate stays as an "active" status, but the progress billing feature keeps track of what has been billed against the estimate so that you can bill it incrementally.

You can also use Sales Orders, it's pretty much the same as estimates, but the reporting and concept is a little different.

For the deposit portion you can use either a sales receipt or an invoice to bill the deposit item. A sales receipt if the money is in hand.

I think you are biling for products (saw some of your other posts). Whether to bill the up front 50% as an incremental billing or as a deposit is an important distinction. Usually the progress invoicing (just billing incrementally) is done when you are earning the funds over a period of time, so I believe the deposit scenario is correct for you.

[katrina22]

Originally Posted by PennyLane

Oh, I see. It's a long thread.

QuickBooks for MAC .... I can't recall where the preferences are for that! I just did it the other day, but I don't have a mac and I don't remember. I think it might be under company or something.

Anyway, the Estimate stays as an "active" status, but the progress billing feature keeps track of what has been billed against the estimate so that you can bill it incrementally.

You can also use Sales Orders, it's pretty much the same as estimates, but the reporting and concept is a little different.

For the deposit portion you can use either a sales receipt or an invoice to bill the deposit item. A sales receipt if the money is in hand.

I think you are billing for products (saw some of your other posts). Whether to bill the up front 50% as an incremental billing or as a deposit is an important distinction. Usually the progress invoicing (just billing incrementally) is done when you are earning the funds over a period of time, so I believe the deposit scenario is correct for you.

Hi Penny - i believe my post edit above and your reply crossed in cyberspace... can you please have a quick glance at my edit above and share your final thoughts.... it will again be very much appreciated

[PennyLane]

I didn't realize there was no progress invoicing in QuickBooks for Mac.

So, you can't create an invoice from an estimate? If that's the case, you'll need to create the deposit sales receipt using the deposit item and then later when you create the invoice for the product, you'll need to create the invoice and the put the deposit item as a negative on the invoice.

The only difference is that you have to keep track of it diffferently. It's nice to have it figured out ahead of time with the estimate.

[wandaschmick]

This thread is very helpful and informative to the readers. Thank you for sharing such wonderful post here.

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TVwebi

[n8rr]

Penny, thanks for your help here. I have a question regarding taxes. Assume I am a cash basis taxpayer that doesn't keep these customer deposits in a separate holding account but rather uses them for regular and ongoing operations. Based on your method, it seems that the customer deposit will not show up on a cash basis IS in the period it was received. It seems that would be underreporting income for that period. Did I miss something when I tested this out?

To get around this, and also for proper sales tax reporting, I have my deposit received item (mapped to income) on the initial invoice, then enter a second invoice at the time of service (including a negative amount to the deposits received item) detailing all the items that were purchased.

To keep things simple for my clients, I have them enter two invoices at once - one dated when the deposit occurs and one set to the future date of service. What are some pitfalls in this?

[Joe Williams]

On CASH BASIS, QuickBooks and IRS will recognize income on either the invoice date or the payments, based on the latest date. If you enter a Receive Payment on Jan 1 and the invoice on Feb 1, the income is considered as income on Feb 1, even though you received MONEY on Jan 1.
The prepayment can be held in AR as a CREDIT or in an Other Current Liability account. It is easier to just allow it to stay in AR.

[LauraD]

I use n8rr's procedure for my own business, but don't create two invoices.

I use a sales receipt to post a pre-payment, using an item called PrePayment, which points to my income account.

Then, I enter my time and create an invoice from time/costs.

Then, I apply the pre-payment (or portion of. . .) to zero out the invoice. If there is still a balance on the invoice, I hold it and apply the next pre-payment, or send it and request a payment on the balance.

I have created a memorized report showing all Balances 'on account' so I always know which client has available time.

While I usually teach my clients to receive pre-payments via a/r and leave a credit balance, I found this method to work better for my specific business where most of my clients pre-pay for services. This system keeps my P & L accurate for tax purposes and gives me accurate reports to run/manage my business.

[LauraD]

Joe - just to clarify -

If you receive a pre-payment via a/r and keep the credit on account, QuickBooks does not recognize it as income on a cash basis report until there is an invoice to apply it to. (which is what you were saying. . .yes?)

However, if there are any pre-payments when you are running a report for tax purposes (year end, or to calculate estimated taxes), you will have to make an adjusting entry to reclass all such pre-payments to income (if on a cash basis) or Customer Deposits (if on accrual basis) in order to capture those pre-payments correctly.

[PennyLane]

You manner of receiving the income and posting it as a negative on a future invoice is fine if it works for you. I do find it helpful to create the future invoice as well. Cash basis or not, you have not actually earned the income that is the deposit and I normally prefer to keep it in a liability account. But, it's perfectly ok if it works for you.

[doby]

Thank you for all the great information.

How does one manage deposit monies received in 2010 and applied in 2010 and 2011?

Which ever year I invoice in, the whole amount goes to that year even though I used the sales order & sales receipt with appropriate dates.

I can only think of making two invoices.

Are there any other ways to handle this?

Thanks again.

[LauraD]

At year-end, calculate any pre-payments.

Then, enter a journal entry dated 12/31/10 (or last day of fiscal year).

If on cash basis, do this:

Debit Accounts Receivable (use a customer name: ".A/R for adjustments only"

Credit Income

If on accrual basis, do this:

Debit Accounts Receivable (use a customer name: ".A/R for adjustments only"

Credit Customer Deposits (current liability type account)

Then, create a reversing entry dated the first day of the next fiscal year.

To apply the A/R entries, go to Receive Payment and enter the ".A/R for adjustments only" customer name and apply the credit to the invoice, dated in the new fiscal year. Make sure that your payment amount is zero before saving.

Laura D

[doby]

Thank you for your help