 QuickBooks Online 2023 Progress Invoicing Example Number 2 Customer Deposit Get ready to earn the skills needed to boost your bank books on up with QuickBooks Online 2023 Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website Broking 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 Here we are in our QuickBooks Online test company file we started up in a prior presentation Remember we're in the accounting view as opposed to the business view you can toggle between the two views by going to the cog up top Switch the view down below We're going to open up some tabs to put reports in like we do every time Right click in the tab up top to duplicate it right click in the duplicate a tab to duplicate it again Tabbing to the middle down to the reports on the left opening up the balance sheet as that is thinking It's not thinking there's nothing there but I go to the tab the right anyways reports and then we'll open up the profit and loss report Back to the tab to the middle I'm going to put the date range this time from 010125 to 06325 Just for the first half of the year nothing's in it because our prior practice problem was for the second half of the year Tab to the right I'm going to do the same thing here 010125 to 06325 and run it nothing there because it's for the first half of the year Let's go back to the first tab last time we created our project and we are in project number two now And and we made an estimate for project number two based on this information estimate for 100,000 didn't record anything Now we have the first deposit that we would like to receive from the client if they accept the estimate So now we're going to say we're going to get $10,000 before we've even had any expenses yet Last time all we did was just record the billing when the billing happened with an invoice This time we would like to focus a little bit more on the revenue recognition So the thing is if I make an invoice for it then what's going to happen is it's going to increase accounts receivable Which is what we want but the other side is going to be going to revenue which is which is not what we want So there's a couple different ways that we can deal with that So one this one way that's kind of like the simplest way but it could cause a few issues with records to the to the collection being as easy Would be if I look at my flow chart here you've got an invoice receive payment and record deposits Now if I'm going to get receiving the payment before I do the work then you would say I wouldn't normally want to create an invoice I would rather enter the receipt of the payment the 10,000 down and then I can apply it to the invoice that I'm going to create basically in a future time period So I'll first take a look at that option the second option would be to create the invoice but have the invoice not record to revenue But instead record to some other account account like a liability account so we're not recognizing revenue when basically we make the invoice Let's start with the first option I'm going to enter in the first option show you what it looks like and then I'm going to actually delete it And then run with the second option so that we can continue on and show you the difference between the two So if I was to go in here we could say hey look here's the estimate that we gave you I'm going to go to the sales tab And we could say here's the estimate and we could say that based on the estimate we want $10,000 we could put that in the note or the message Or in the email that we send them here's our estimate we need $10,000 down we don't send them an invoice for it We just send them the estimate and the information of how much we want down and then they just pay us on it without an invoice We're not tracking accounts receivable and that could work quite well that would be fine The only kind of issue with the invoice is sometimes the invoice has the payment options that are kind of linked to the invoice It can make it a little bit easier to give the payment but if that's not an issue if they know how to pay you and whatnot Then you could just say you know give me a payment for the $10,000 and then when we receive the payment We can do the second step in our normal kind of flow chart over here which is just to receive the payment So I can go into my projects I might do that from project number two and I can say that we're going to receive the payment Without an invoice related to it project number two let's say that happens on 1125 whatever the payment is I won't put it here but it's going to go into I'm just going to put it directly into the checking account As opposed to putting it into a clearing account just so we can skip that added kind of step for simplicity's sake And we're going to say that it was for $10,000 Now normally here there's going to be a payment down here or an invoice that I can apply it to I don't have one What's the system going to do then? Well it's a receive payment that means it's going to lower accounts receivable There's nothing in accounts receivable so it's going to make a negative accounts receivable for this particular client and project And then the other side is going to go to the cash obviously is going to go up And it'll create like a credit that I can later apply to the invoice That's the nice thing about this method that works quite nicely So I can save and close and it 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 That's what we want that gives you that nice matching kind of system So I'm going to go back up and I'm going to say what happened then if I run the report on the balance sheet Now we've got our checking account has gone up and we've got this negative receivable Note that negative receivable also isn't exactly right Because we would rather have a positive liability or something like that Usually when we got a deposit because a negative receivable means we owe them money Which we do because we haven't done anything yet Usually that should be like an unearned revenue type of thing However the negative receivable works nicely internally Because I'd like to match up the receivable to an invoice I'm going to make at a future point in time And the accounts receivable is the account to do that And if we needed to make it a period in adjustment for financial reporting, external reporting It would be fairly easy for us to take those negative receivables And make a journal entry for external reporting purposes to put them into a liability So that's not perfect but that's where it goes there If I go to the income statement, nothing's on the income statement, that's the point We don't want it on the income statement because we haven't earned the revenue yet at this point in time Now internally if I look at my customers over here If I go to my sales and go to my customers, customer number two I've got the estimate and the payment Which this side works very nicely from the bookkeeping side of things Because now I can easily look at this and say Okay, the next thing that needs to be happening is that I'm going to invoice them And I should be able to apply this prepayment to the next invoice that happens So I'm going to make an invoice just to show you what I mean on that And then I'll delete these two things and show you the other method So if I was to say, for example, I'm going to make an invoice And we're going to say, okay, this is for customer number two We could pull it in from the estimate if we want So if I was to make the next invoice from the estimate It's going to be, what do we say for the estimate? It's going to be 25%, let's say 25%, 25%, 25,000 And then we'll say copy it on over And let's say this happens on 115 Which is using it for practice purposes because I will delete it So you may not want to record this on your end because I'm just going to delete it But there we have it, so it comes out to the 25,000 What's the invoice going to be doing? It's going to increase the accounts receivable And the other side is going to be going to the revenue generally We'll talk about the revenue recognition issues with the revenue But the point is I already have 10,000 that I received that I can match up to this invoice So if I save and close it, for example Then we've got the 10,000 unapplied amount of the payment And the invoice of the 25, I would like to apply these two out Which I can do by going up top and saying that we want to make a payment For job number two and you can see on the payment side Now I have an invoice and I have the unapplied amount So I can match those two out at this point Which again works very nicely from an internal reporting perspective So now if I look at this, it's beautifully laid out from a bookkeeping standpoint Because now I've got the estimate, I got the payment that I received in advance And I've got the invoice which now shows me the charge on the invoice And the amount that was applied to it I give this invoice to the client now showing that we still have the balance of the 25,000 on the invoice to be paid If I go back to the balance sheet then I can see then in the checking account now we've got the 10,000 The receivables is now a positive number So note that that negative receivable is only a temporary problem Because the timing difference, it'll go away So that's still an issue but it's kind of manageable issue And now we're where we want to be And again from the internal side if I was going to have a question from the client This side of things looks very nice, right? Everything's lined up quite nicely Alright, so now I'm going to delete that and show the other method that we could use So I'm going to say maybe the problem with this method is the one problem is the payment that I have right here I received without giving them an invoice I gave them the estimate and told them to give me a payment of 10,000 based on the estimate But sometimes it's easier to send the invoice depending on how they're going to pay you If it's going to be connected to the payment options of the invoice or something like that That's one of the major kind of issues So I'm going to actually go into the payment and go more and delete it Delete the payment and then I'm going to go back into the invoice and delete the invoice So I'm going to delete the invoice So now we're back to where we were If I go back over here, we've got nothing in our reports again Same spot we were at before So the second option is that I would like to bill the client for the $10,000 So now I'm going to say, alright, invoice $10,000 because it'll be easier Because I have their email or whatever for them to pay me with the invoice setup that we have So we're going to say, alright, project number two I still can pull it in from my estimate so I can do that still Here's my progress invoicing just according to our plan 10% down that we want So I'm going to say 10% down, save it on in And everything looks really nice that I can then give to the client that gives me the $10,000 But the problem is that if I do it this way, it's going to record revenue Because these are all going to revenue So what I'd like to do is not record it to revenue But record it instead to another liability account Which you might call unearned revenue, you might call customer deposit I'm going to call it billings, which is sometimes a term used for a job cost system So I'm going to make two transactions here I'm going to reduce it back down to zero by reducing the revenue account And then I'm going to put it into basically a billings account So this is a little bit ugly on the invoice, but you'll see what it does here So if I make a new item and I say it's a service item And I'm just going to say reduce revenue account item Just to say exactly what it's doing, you can name it whatever you want But I'm going to say, there it is, it's going to go into the revenue of sales of products And I'm going to go boom, and then I'm going to say that I want it for the whole amount, the $10,000 To reduce the revenue, not by $100,000, but by $10,000 Negative, negative $10,000 Get it right, this is going to be class two So that brings it down to zero, and where I really want it to go is not to revenue, but to the liability account So I'll make another item here, which I'm going to call billings So I'll say new, and it's going to be a non-inventory, let's call it billings Billings account copy, paste It's going to go not to the services, not to an income tape account at all, but to a liability account So I'm going to make a new account, it's going to be another current liability The second thing doesn't, I'm just going to call it other current liability and call it billings And so we'll save it, and so save and close So that is going to be the full amount again, the $10,000 I'll put it in class number two So what this does then, it allows us to use the invoice, because the invoice allows us to collect an email and do all that kind of stuff But then this last bit down here is going to make it so these items, I don't have to use other weird items I can just say, I'm just going to reverse what it did to the income statement side With another item that just reverses the income account to take it out of income So it's like another little journal entry at the bottom here Reducing revenue, this increased revenue, we reduce revenue And then we put it into a liability account instead So what's this going to do ultimately, it's an invoice, it's going to be increased in accounts receivable That's what invoices do, it's going to be negated out of the revenue from this whole thing And instead, the other side is going to be credited to the billings account Which is a liability type of account similar to unearned revenue or customer deposit or something So now, and I can send this to them even though it's a little bit wonky with these last two pieces And I can send that to the client, so I'm going to save it and close it So then, there it is, if I go back to our financials and run it Now we've got accounts receivable which went up, which that's perfect And the other side went to billings So if I go into this, I can see my accounts receivable going up with the invoice, perfect And the other side going to billings, which is a liability account Which is what we want going back up And then I'm going to go to my income statement, nothing's on the income statement Because we haven't recognized any revenue, which is basically what we want Going to the first tab, if I go into my sales and my customers Customer number two, now we've got our normal kind of invoice process again And at least the collection process from this point should be fairly straightforward Meaning the next thing that we expect to happen is we expect to get paid on the invoice So let's go ahead and say that happens So now we bill them and then they're going to pay us for the invoice So we might do this from the projects again, so I'll go into the projects And then I'm going to say project number two And then let's say now we receive payment for project number two And I'm going to say that this happened on 115 So cash payment, it's going to go into the checking account directly And this time we've got the invoice, we entered the invoice first And now we're going to receive the payment from it like normal And I'm going to say save And what's this going to do? It's going to reduce accounts receivable And the other side is going to go into the cash So I'm going to say okay And then I can go back on over here and say balance sheet what happens The accounts receivable goes down and it went into the checking account And this billing account is still here on the liabilities If I show this by class by the way Then notice that this billing account is a balance sheet account That it breaks out by class Which it doesn't do all the time with some of the other ones like checking Unless you're into a hire, unless you pay more for it But this is the QuickBooks Pro Plus But this could be useful to us that it breaks out the billing here So that we can track the billing by class That's why the class and the jobs that double thing could be useful for us So we'll see that more in future presentations Nothing's over here on the profit and loss First tab, we can see that there's no income in the project yet Even though we collected 10,000 on it This is basically showing kind of an income statement for the projects That's why the balance sheet having the classes of the billings Is kind of nice that it breaks that out by class That's why that redundancy is kind of nice And then if I go into the sales over here And I look at customer number two Now we've got the estimate We invoiced for it And the payment is here So everything looks quite nice from a collection standpoint Using this method as well Although the invoice is a little bit wonky To set up the invoice So we'll continue with this process Next time And go through what would be happening Once we actually run costs And then we're going to build the client based on this schedule Even though our revenue recognition will be different Than that schedule That's our problems going forward