 QuickBooks Online 2023, advanced customer payment or unearned revenue method number one. Get ready to start moving on up with QuickBooks Online 2023. Here we are in our GIC, Great Guitars Practice file. We started up in a prior presentation using the 30 day free trial. We also have open the free QuickBooks Online sample company. If you want the two open at the same time, we suggest using incognito window or another browser. Support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources, such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. You can open incognito if using Google Chrome by selecting the three dots up top. Incognito window, type into the search engine, QuickBooks Online, test drive. We're gonna use the sample company to compare the accounting view, the view that GigRig Tars is in, and the business view, the one the sample company is in. If you wanna toggle back and forth between the two, select the cog up top, switch the view down below. We're gonna duplicate some tabs like we do every time. Right click it on the tab to duplicate it, and then duplicate the duplication by right clicking to duplicate again, and then we're gonna tab to the left. We're gonna go to the reports on the left. I'm gonna close this thing out over here, which you probably don't have. I'm gonna then open up the balance sheet. How do you find that on the business view? We could find that on the business view by going to the business overview on the left, and then the reports. That's where they're in the business view. Back to the accounting view. We're in GigRig Tars. I'm gonna go to the tab to the right. As we do every time, open up the reports. This time the income statement. Closing the boogie. The rangeings, they are a change. You know, one, oh, one, two, three to oh, two, 28, two, three. And we'll hit the drop down and months by months breakout and run it. Then we got Jan, we got Feb, we got the tote. And then tab to the left. Close up the boogie and change that range from oh, one, oh, one, two, three to oh, two, 28, two, three and run it. That's the setup process we do every time. Now we're gonna think about a situation where we get an advanced payment to understand the complexity here of the new issue. Let's take a look at the flow chart. We're looking at the customer cycle where at the end of the cycle we would expect to have an increase to our checking account. Remember that there's a couple of different ways the customer cycle might be set up depending on the industry we are in. If we just get paid by like a platform, like a YouTube, we might just have our bank feeds set up and we get the bank feeds come in with a deposit. We might record the revenue that way or we might have a cash register situation like a food truck or store or something where we would record the payment as it happens and then make the deposit or we might be in a system where we have to do an accrual thing meaning we build the customer, we do the work, then build the customer like a bookkeeping or a law firm or landscaping and then we have to track the accounts receivable, receive the payment and then make the deposit. Now we have another kind of way that this could happen and that could be, well, what if I receive the payment before I do the work? So if I think about the normal accrual process, we do the work and then receive the payment or I get the both at the same time. In this case, we're gonna say we got the payment before we did the work. When would that happen? That might happen on a subscription-based model which used to be like the classic magazines and newspapers were the classic example. Now it's becoming more common for subscription models on applications and that kind of stuff where you pay for the application before you actually get the service. That means if you're the one providing the magazines to applications or something like that, you're actually getting money before you did the work on an accrual-based system. You shouldn't record the revenue until you actually do the work is the general idea. This is a classic textbook problem for unearned revenue. This is like an unearned revenue type of problem. So when we get paid, we have to increase the cash. The other side goes to a liability unearned revenue and then we should decrease the unearned revenue as we do the work recording the revenue when we actually did it rather than when we got paid. Other places where this might happen is maybe we don't have a subscription model but maybe we rent something, for example. In that case, you might get a down payment on it or the last month's rent, for example, a deposit of some kind. So in that case, you've got some money that you received that you have to either give back or it's part of the last month rent that you have not incurred. So once again, it's not really yours. It's really cash that you receive that you have to pay back. So it's kind of like a liability until you do whatever you need to do to finish the job and then record it as revenue. And the same could happen in our situation. For example, we're gonna imagine that we're selling something that's fairly large. Possibly we have to request it from the vendor and therefore we want the security deposit. We want you to give us a down payment before we complete the work so that you're committed. You're tied in to finish the job and we feel like we're not gonna be hung out to dry. So that's another area where we might get paid first before we've done the work and we should record it basically as a liability. So those are some general ideas on when this might happen. Another classic one is like a concert or something where there's an event you're selling tickets for. You're actually getting paid the tickets before the event happens so you haven't really provided the service. If you didn't provide the service, you'd be on the hook for the money that people gave you and you either give it back or you leave town because you're a scammer or something like that, right? So that's the idea. So then the question is, well, how do we record that? From a textbook standpoint, we should debit cash or increase cash. The other side shouldn't go into a receivable account but should go into unearned revenue. That's a liability account until we earn it by doing the work. But there's kind of an issue with that when you get into the bookkeeping of it because if I look at that logistically, if I look over here on the liability side of things, like an accounts payable or the liability accounts, there's nothing on these accounts that tie into my customers because I'm dealing with customers here and I would like to be able to tie in my advanced payment that I'm receiving to the customer that I'm later gonna be billing for or whatever, creating an invoice to show that I did the work. And I can't do that on these accounts down here because they don't have a sub ledger for customers. The account that has a sub ledger for customers is of course accounts receivable. So one way you can do this, and it's quite common, although if you've come from a textbook situation, you're gonna kind of resist wanting to do this but it works quite well to have a negative receivable. And that's kind of, so we credit the account before we, and that makes a negative receivable. So instead of having a positive liability, we have a negative receivable until the point in time that we do the work and then we can net out the receivable to the invoice. So it gives us that nice kind of matching system. Now, if you have a situation where you have a lot of negative receivables for deposits, then at the end of the year, you can kind of account for this by doing, applying your standard adjusting entry kind of concept. Usually adjusting entries are there to like adjust at the end of the month, things like prepaid assets or prepaid expenses and whatnot so that you can record them when you actually incurred them. In this case, so they usually have a balance sheet account and an income statement account. Here, you could do a similar kind of thing and you could say, okay, well, I'm just going to record a negative receivable because that works logistically from the bookkeeping side of things and then at the end of the month, if they haven't yet completed, then I can do an adjusting entry taking them out of the receivable, recording the liability and then reversing it the first day of the next month. We'll talk about that when we get to the adjusting entries in another course or section. You can also try to come up with another method so that when you record them, you don't end up with a negative receivable. We'll talk about a method that you can use to do that as well, but logistically from the bookkeeper standpoint, having a negative receivable works quite well because it links out all the forms with the sub ledger for the customer, which is where we want it. So that's what we'll start off with. Okay, so given all that, let's go to the first tab. Let's imagine that we have someone coming in. Let's say it's Anderson again, Mr. Anderson's always causing us trouble and they want to order a guitar that either we don't have on hand or they're calling it in at this point in time and we're like, we can get that for you, but we want you to give us a down payment so that we know that you're committed to us going to the work to get that for you. And they're like, okay, and they give us a down payment. So I'm gonna say instead of having the invoice first, I'm gonna go to the receive payment, even though I don't have an invoice to tie out the payment too. So we're gonna go in here, I'm gonna tie in, I'm gonna put in Anderson. Mr. Anderson's always causing trouble. Here we go, and it says Anderson guitar payment doesn't have an open invoice to go with it. So meaning it doesn't have an invoice to apply to it because the receive payment is a decrease to accounts receivable and you should only decrease accounts receivable if there's an outstanding balance, otherwise you end up with a liability in essence. But we're gonna say that's fine because we got the payment before we made the invoice. And so we're gonna end up with that negative amount that we can apply to the invoice when we make later. Let's bring this up to the 25th and I'm just gonna keep the cash as the payment method. It can be whatever payment method that's not important really for our practice problem. We could put it into the payments to deposit account just like normal, if it was a cash payment that we can group together without other payments or we can put it directly into the checking account. And then I have no invoice to check off down here because there is no invoice. So what I'm gonna do is I'm just gonna put the amount up top that we got and then I'm not gonna apply it to an invoice which means now there's gonna be this outstanding balance that I can apply to another invoice later. When you talk to a client say, this is when you say like, well, I credited your account for it, right? Because what happened is the receivable for us got credited which is usually lowering the asset, right? And that's what it means to the customer. It's a good thing because now that means that on the next purchase, we're gonna apply the credit to the debit, a balance of the accounts receivable when we make the invoice. All right, so let's save it and close it. I'll see what happens. Says you didn't select any invoice. We'll save this payment as a credit to your customer since you didn't select an invoice. If you want to record payments without an invoice, use a sales receipt. And we're gonna say, okay, do that then. And then we're gonna go to the tab to the right. And then if I run it again, run it. Cause Jenna told me to, I was running. That's what forest gum, that was forest gum right there. No one knows that move anymore. You're old, that's an old move. This is a payment. So here it is, $300. And so there is our payment. Okay. And then if I go back to the tab, the other side is in payments down here to deposit. There's the 300. And the key is the sub ledger for the accounts receivable. So let's open that up tab to the right, right click and duplicate it. And then we're gonna go to the reports on the left, the reports on the left. And then we're gonna go into who owes you money. And let's go into, let's go into the accounts receivable. Let's do it this way this time. Let's go into the customer balance detail. Let's do that one. Let's do that one. And then we're gonna say, there it is. There's all the dates. So now we've got, see Mr. Anderson here has a negative balance. How can that be? Accounts receivable represents people owing us money. You can't have a negative balance. Otherwise we owe them money. It shouldn't be a negative receivable, but rather a positive liability. But it'll work quite well that it's in here with the receivables because then when I make the invoice, it'll tie out to the sub ledger under Mr. Anderson's guitar. Anderson guitars here. So notice it doesn't make the whole accounts receivable negative of course. It only makes that one amount negative. Now, if at the end of the month or a year I need to make financial statements and I wanna properly record accounts receivable and the unearned revenue, then I can go in here and make an adjustment, increase in the accounts receivable and recording the liability for that financial statement reporting and then reverse it so that I can go back to the system that works well logistically. Because again, if I just record this into a liability account, then when I make the invoice next time, I can't pull in the credit as easily because it's not in the account that's tied to it. We do have a work around we can use but it's not as efficient in my opinion anyways from the bookkeepers perspective. So, but that still ties out to the 19 5 11. Here's the 19 5 11. If I go to the first tab, we can track this by going to the sales side of things, closing up the boogie and we would probably let's go and hold on sales. And then I wanna go into the customers and then close up the boogie. And then I'm looking for Anderson. I'm looking for you Anderson. I'm gonna clear all the filters. I don't see him Anderson's heightened from me like I'm the agent in the matrix. So I'm gonna go in here and then, so there's that negative 300 right there. So then I can make a payment and I can track the payment right in here. By the way, where's that on the business view? You might say, even if you don't, I'll tell you anyways. It's in the get paid and paid area and then the customers right there. That's where we're at. Okay, back to our view. So there it is. All right, let's just do another one here. I'll just do a couple and similar scenario. So now we got another person that came in, Sam the guitar man. I'm just gonna do the same thing. We're gonna say we received the payment because he talked to Anderson. Now Anderson's telling everybody that they should buy their guitars this way. So we're like, ah, so now I'm got Sam the guitar man. We're like, okay, Sam, you want this special guitar. We need the down payment first and the payment methods is gonna be cash and it's gonna go into the payments to deposit. Now Sam has an open invoice right now, but he wants this other guitar. So I'm not gonna apply it to the open invoice. I'm just gonna say he's gonna put down a 250 payment that's not applied to anything that we're then gonna apply to this other thing that we're gonna buy, but we need to remind him at the same time. But Sam, you got this other invoice that you need to be paying as well. And Sam's like, I'm gonna pay that too, but he wants this other guitar. So we're like, all right, you gotta give us the down payment. So what's this gonna do? It's gonna decrease the accounts receivable again. And the other side is gonna go into that payments to deposit, but it's not applied to any invoice, even though he has one outstanding. So I'm gonna save it and close it and we'll check it out, tap to the right and run it, running. I was running. You may not believe this, but I can run like the wind blows. And so we're down here. And then there's the 300. Okay. Other side is in the amount to be deposited, which is right there. And then if I go to my sub ledger account, we can say, run that again. And then we've got, who was this again? This was the guitar person. Okay. There's a bit of a problem here. I'm gonna go back to the first tab. Notice that QuickBooks automatically, partially applied out the payment because I believe that's what we have in the settings. That's the default settings for it to try to apply out automatically. So if you do this often, then you might wanna go into the settings and tell it not to apply out the credits automatically. I'm gonna go back in here and see if I can unapply it. So if I go back in here, you can see it tried to apply it out automatically. So now I'm gonna try to save it and close it again. It says, you didn't select any invoice. That's what I wanna see. And that's what I wanted to do. The transactions are edited is linked. I'm gonna say, yes, save it. And so now it's unapplied. That's what we wanna see here. So now if I go back on over and do it again, I'm going to run it. And so now we've got then Sam, the guitar man has the outstanding amount of the 9.30. And then also this payment of the 250, the 19.261 should tie out to what we have over here, 19.261.50. Okay. Let's do it again. Back to the first tab. I'm gonna run it again, a plus button. And we're gonna say receive payment. This time I'm gonna say it's for Eric Music. Eric Music. And there's doesn't have any open invoices. That's okay. And cause we're gonna get this down payment. Cause now we've got Anderson told all these people that they should buy this super cool guitar and you could just put a down payment down. And so we're like, okay, as long as these people pay us, we're gonna do this deposit. I hope they pay us, but they should. Cause we're gonna take this deposit of $200 from you, Mr. Eric Music. And then we'll save that, do it again. Save it, boom. And then on the A to the R, we should have then an increase here, of course, for Eric Music. And then the other side, Ultra V, the other side is gonna be in the deposits. And then if I go to the tab to the right and run this again, now I've got Eric Music with this negative payment amount. So again, these are not exactly correct from an accounts receivable standpoint, but they will be correct once we apply the invoice. And if they're not correct by the end of the period, when we do financial reports, we can do adjusting entries, adjusting the accounts receivable and the liability, which works fairly well. And it allows the bookkeeping side of things to be, I believe, as easy as it can be. From the bookkeeper's perspective, I think they would like this. If you look at an accountant that learned basically from a textbook more than software, they would probably be like, I wanted an unearned revenue, right? And we'll do another method for that, but it is what it is. So in any case, now let's make the deposit of that 750. Let's go to the tab to the left and then we're going to go to the plus button and make the deposits. Cause now we put those in to that amount to be deposited. So we're going to put it into the checking account. We're going to check them all off to deposit them at one time, 750, because that's how we expect to see them on the bank statement. This is going to increase the checking account, other side decreasing the clearing account of that amount to be deposited or payments to deposit, the undeposited fund like account that they changed the name to an online version fairly recently or not spent a while, but you know, you know what I'm talking about. And so we're going to go into the payments to deposit. It's back down to zero cause it's a clearing account and it made the deposit one at a time so we can tick and tie them off one at a time. But when it put it into the checking account, it put it in there as one lump sum because that's how it's going to show up on the bank statement we think. And therefore it'll make it easy for us to tie out in a bank reconciliation or possibly with the use of the matching to the bank feeds. So there it is, next time we'll talk about applying out some invoices and then applying out this amounts to the invoice, which if I go back to the first tab, just take one more look at Eric Music here. So we expect then that we get the guitar and then we finish this transaction by making an invoice, which we can apply the outstanding credit to, the deposit to and that should match up beautifully, even though it's a little bit out of order than what we would normally think of in our flow cycle because we wanted to get that money upfront. So it's unapplied, we should be able to apply it out nicely because we're inside the area that is designed to track customer stuff, which is the area supporting the accounts receivable account. All right, let's go to the tab to the right. Let's open our trial balance just to see where we stand and then we'll continue with the saga of Get Great Guitars next time. So trial balance, check your numbers, put your numbers on trial. We're gonna go from 010123 to 022823. We're gonna see it side by side on the month by month, run it, this is where we stand at this point in time. If you tie out to what we have then, then I'm not saying it's right necessarily, but we're on the same page, so that's good. And then you can expand the dates if you want, if there's something that's different and we'll be doing a transaction detail report at the end of the month to further drill down on any differences at that time.