 QuickBooks desktop 2024 negative accounts receivable subscription unearned revenue model estimate sales order and receive payment forms get ready and some coffee because we're locking into some nonstop QuickBooks desktop 2024 First a word from our sponsor Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us But that's okay whatever because our merchandise is better than their stupid stuff anyways Like our trust me I'm an accountant product line Yeah it's paramount that you let people know that you're an accountant Because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com We are in our QuickBooks desktop sample company file we set up in a prior presentation using the enterprise version of QuickBooks desktop so we can focus in on the new feature of unearned revenue Under the view dropdown we have the hide icon bar checked off open windows list checked off open windows open on the left under the company dropdown we have the home page open Now we're going to open up reports by going to the reports dropdown company and financial looking first at that balance sheet standard And we'll go to the customized reports up top then changing the range from 010127 tab 123127 tab and I'll go to the fonts and the numbers changing the font I'm going to bring it up to 14 as has been our custom okay yes and okay so there we have it Let's then go to the reports dropdown again this time the other major financial statement report we open every time that being the profit and loss standard The income statement the P&L has changed the date range this time I'm going to bring the date range only from 010127 tab to 033127 And our new scenario will be running in the third month March and therefore on the dropdown I want to see it month by month So we did our first month in January second month and now we're going to do our third scenario in the third month so we can kind of see a side by side comparison Let's go to the customized reports fonts and numbers and bring the font on up to 14 which would be nice so we can see what you're talking about because then the numbers will be bigger and my eyes aren't that good So this is where we're going to be running our new scenario let's go back to the home tab now So we've been thinking about the unearned revenue feature QuickBooks desktop especially the enterprise version having the capacity to have an unearned revenue account But we want to compare and contrast the different methods that are available to us so we then first started with the normal process making an estimate making an invoice Or a sales order and then an invoice and then receiving the payment then we did the second thought process of us having a system where we want to collect a deposit on a large sale like a custom surfboard in which case we did an estimate A sales order collected then the money before we made the invoice so that some money at least so that we can make a customer deposit or unearned revenue Then we purchased the inventory and then we made the invoice and the invoice netted out against the prepayment resulting in a negative AR for a short period of time This time we're going to do a similar process but pretend instead of having an inventory sale that we have a subscription model the classic kind of subscription model being a magazine company or a newspaper So you pay in advance for like a year's subscription and then they throw the newspaper through your window every week or something And so you pay for that so you're basically playing some kid to throw stuff at your house right now I get stuff thrown at my house I don't need to pay for it so I stop the paper But now I buy you can buy other online stuff as well and get a subscription model for software so that's quite common as well So let's think about this from a subscription model we will first do the unearned revenue method and then we're going to be comparing and contrasting the new method And the next section for these two scenarios so we're going to imagine on the subscription model we still could make an estimate We might not need to do that because the subscription is going to be pretty much standard right so it's not like you have a custom job that is happening So it's probably the case that you would then go to the invoice and invoice someone as they pay you But the problem is when you do that if you were just to invoice someone when they pay you then you're recording the revenue because the invoice is going to be recording the revenue before you actually receive the payment So that's or before you actually do the work so that's from a from a bookkeeping standpoint that's not exactly the way we're supposed to do it We should we should first be recording it as unearned revenue and then when we do the work meaning we give the paper or the application that's when we record the revenue So how can we set that process up well we could start by saying I'm going to record the received payment which in this method will make a negative accounts receivable And then we'll match it out to the invoices that that we can basically create on a periodic basis monthly possibly and that will that will match out the negative AR And record the revenue as we earn it so but we'll we'll do this full process and make the estimate and the sales order form just so we can see it in a similar way as we did before So I'm going to make an estimate I'm going to say this is going to be negative AR just so I can name the method let's let's actually label it number three negative AR And the subscription subscription and this is going to be for the customer that's a weird customer name but I'm doing that just so we can make sure that we differentiate the three methods or scenarios we have run thus far Quick add I'm going to say this happens on 030127 so we'll have just that happening on the income statement and then the item I'm going to make the same item is going to be three negative AR customer and I'll just call it item at the end of it tab I'm going to say yes we didn't have that so I'm going to add it and this time I'm going to do something a little bit different it's a subscription model so I don't need inventory However sometimes it might be useful for us to record each of the month payments separately so if I charge it similar to what we did before where we charged $175 so let's say $175 divided by five So let's imagine that we're going to collect we're going to we're going to do a five month subscription which is kind of weird you probably doing a six month subscription or 12 months but let's say it's a five month subscription and then I'm going to record a separate item for each month right and then and so then we can collect $35 each so hopefully that'll make sense once we start doing this I'm going to say negative AR subscription item let's just say customer name of item not customer let's just say subscription one so I'm going to copy that that's going to be the item that's going to be the name of the service item and then we're going to say that the amount for it is going to be $35 $35 there's the description for the one is it subject to the sales tax yeah let's keep it subject to sales tax and then on the income account I'm going to call it the same thing negative AR subscription one we'll just subscription let's keep it at that and I'll say okay tab set up let's actually put an income before it so say income and then it's negative AR subscription and it's an income type of account okay and then save it us okay alright I'm going to do that like six times now so I'm going to copy the same thing down here but I'm going to put a two at the end of it so it's going to be a two tab and we're going to say okay now same thing except it has a two next to it it's still going to be now this with a two I'll copy that so I can and then this is going to be 35 again and then it's going to be tax and then it's going to be negative AR the account is going to be what I call it three I should have put an income income income negative AR subscription that's what I called it right income I put a three in front of it income negative AR subscription okay I think I've got that right alright so I'm going to say okay so there's another one same thing but I'm just mapping out each month so now I'm going to say this will be three tab I should say month three so month number three is what that stands for so now I'm going to tap through this same thing month number three it's for $35 not 345 but 35 and this is three negative AR subscription income account okay and then two more times so this is going to be a four I'll copy that yes and tab tab tab tab tab and this will be a that 35 taxed three negative AR subscription dot dot so I'm going to say okay and then you know vase moss one more time if you please tab yes dot dot dot dot dot dot and then okay and then this is going to be 35 and then I'm going to say that this is going to be three and there's my income and we'll say okay so the point is it comes out to that same 188 56 when it's said and done after we have the tax which is the same as our you know prior practice problems that we were that we were working with with the total AR this is just the estimate though so nothing is going to be recorded at this point in time so I'm going to in my Excel worksheet I can copy over just the same estimate nothing's happening nothing's happening here in terms of recording it to the financial statement so let's save it and close it estimate recorded I can track the estimates as we've seen before by going to the customer drop down customer center and here's our new customer making sure that all dates are seen because we're working in the future and there is our estimate now the next thing that would happen if I go back to my home page so now we've got the estimate we can create a sales order from it that would just be locking in the estimate so I'm going to say okay let's say that they lock in the estimate let's go into the estimate I'm going to create the sales order from it and the estimate has been copied to the sales order so if you wish you can edit the sales order okay sounds good so now we have our sales order and let's make this as of 0302 let's just put a different date and 27 tab tab tab tab everything else looks good same items down below nothing's being recorded we're just basically locking in that they have accepted the estimate and now we've recorded the sales order we still haven't collected any money and we still have not done any done any work so there's the sales order so just like we saw before from a journal entry standpoint there's no actual financial statement transaction for the sales order so if I go back to the home tab so now we've did the estimate we got the sales order we don't have to go and purchase anything because we're not purchasing a custom product from like a vendor this time so the next thing that would happen is we would receive the payment now in this case we're receiving the payment I'm going to jump over here but we're not receiving the payment for for the we're not receiving the payment for a deposit so that we can buy that we're receiving all of the payment basically up front at this point from the subscription model so we're going to get paid for five months up front and we charged five months was 35 each so 35 times the times the five times five was 175 and then we had the sales tax on top of that that's what we're going to basically receive up front and so we're going to say and notice you may or may not have to deal with the sales tax on a subscription model but that'll make it more complicated so we'll do that if I go back to my customer center so now I'm going to say that we have a payment that we're going to receive I'm just going to note the amount here which is going to be 188.56 188.56 and I'm going to record a receive payment so let's say we could do it here or let's go to the home tab just to see it here now we're jumping we're skipping the invoice going to the receive payment so I'm going to say the customers negative AR I said three negative AR and then it's going to be for 188.56 that we're going to collect let's say the date was an 03.0327 let's say and there's nothing to match it out to down here that's the point nothing to match it out here because we don't have an invoice what's this going to do it's going to create a negative accounts receivable which is going to be incorrect at least until we match it out to the to the invoices that we will make in the future which will make on a monthly basis this time so I'm going to make my screen a little bit smaller if I was to see that in terms of journal entries if we go over to excel here we could say okay what happened now we've got now we don't have a purchase order or anything like that instead we're receiving a sales receipt so the sales receipt is the next one that happens and we're going to get cash I'm just going to put into cash from a debit and credit standpoint the other side is going to be going into now negative receivable which is not exactly right this is where the incorrectness kind of happens 188.56 which we saw from the estimate so I'm going to go up top and say okay cash now is going up and accounts receivable is the other side revenue is not being recorded at this time we didn't enter the invoice because we haven't earned it yet we recorded the received payment first so that's where we stand at this point if I record this let's check it out let's save it and close it and say it says a credit for the overpayment will remain on the customers account you can click print the credit memo to save the transaction you can click okay to save the transactions and so on we're going to save it it'll keep the credit so now there's a credit to the account I'm going to zoom back in again and so so now if I go to my customer balance I could see that payment that has been put in place here it not being matched yet to any invoice but it's easy to track internally let's go to my balance sheet now and check it out here we're going to end up with a negative accounts receivable so if I go into my AR now I've got this negative accounts receivable in March so there it is again and so I'm going to say okay and then the other side is going into undeposited funds which is my cash account undeposited funds and then in my sub ledger reports drop down for the accounts receivable I'm going to go down to inventory let's go into the inventory not inventory what am I talking about customers and receivables customers and receivable customer balance detail I've been I need to stop for the day here let's customize the report and let's bring it up to 12 okay so so now we've got this negative accounts receivable so again not exactly correct at this point it should be in a liability account but easy to see in the sub ledger because now if I add up the whole sub ledger comes out to 9281937 which ties out to what's on the balance sheet and hopefully 9281937 and we have one sub ledger tying that out that's the benefit of it and then of course if it becomes a problem for reporting purposes you might do an adjusting entry at the end of the year but it's only a timing difference because when we actually receive that were enter the invoice it should it should start to to cancel out would be the would be the the idea right so if I go back to my customer center here what we have now is this payment that we have received and and then we have well we have the estimate we have the sales order and then we have the payment that has been received will stop here at this point if I go back to the home page next time what we would expect to happen in this model would be that as time passes we're going to say that we delivered the newspaper we had the kid throw the newspaper right through every window on the house and there's only four windows that face the street and all of them were broken within a week and so it was so we said so we and then and then we earned our profit we earned our revenue by doing that so then we can enter the invoice which will increase the the revenue as we earn it and it'll decrease the accounts receivable would be the general idea and we can create the invoice now if I go into the customer the the the customer center we can create it from the sales order or the estimate and notice now we can we can when we pull it into the invoice we can populate it hopefully by each one of these different months that's why we put it in there one by one so we can now pull in each month as the month as the months pass so that's going to be the idea and so we'll continue on with that next time