 cost of goods sold and then on the customer side of things when we have the invoice the next thing is we have to receive payment on the invoice so we send out the invoice we track it and then we're going to get a payment on it and usually we record then a receive payment. The receive payment could be an increase to cash or you might put it into a clearing account called undeposited funds which is a whole other kind of issue that's not really where our focus is right now but it might go into the undeposited funds and then the other side is going to decrease accounts receivable that's our point right now it's decreasing accounts receivable when we receive the payment and then of course we could record the deposit which might take it out of undeposited funds and record it into the bank account if we used undeposited funds here which we might do in the situation where we have multiple deposits that we're going to be combining together that will hit the bank account and one lump sum often the case if we're using like credit cards or we have cash sales for example so that's going to be the normal kind of process now also note that the sales order you'll see that it goes up top here to a purchase order as well. Why does that happen why am I going up here to the purchase order well I mean if we got say a sales order we made an estimate we got a sales order let's say that we make custom surfboards or something or custom guitars or something like that well then we're going to have to actually order the guitar and the custom color or whatever they want so if we don't have the product on hand then we're going to have to order it or we're going to have to make it if it was a job cost system in which case we might make a purchase order which would then mean I'm going to use the sales order to create the purchase order to request the inventory from my vendor so I can get the inventory and then turn around and sell it with the invoice so then I go to the purchase order and then we get the inventory so the inventory adds another layer of complexity. Now that's going to be the normal process now a couple wrinkles in the normal process one is that if you use an estimate and you have a job cost system one in which the job takes a fairly long amount of time so it's not like you're doing you know you're not going to it's not like you're going to do the job first and then invoice the client because the job is taking an extended period of time then you might not be using a normal revenue recognition principle but a percentage of completion type of thing meaning you're going to recognize revenue as you start doing the job if you constructed an entire house or something like that or had a large project within constructing a house then you might be trying to you might be appropriate then to recognize revenue not when the job is done but as you do the job so now you have a revenue recognition issue that's kind of a whole nother type of accounting that we can that is interesting field good place to specialize in but that's another kind of wrinkle in the situation and then the wrinkle that we're really focused in on here is the idea will what if I get paid before I do the work so so now I'm going to say I'm still going to recognize the revenue possibly when the work is done but I'm going to collect some revenue before I do the work because for multiple different reasons right one I might be selling inventory if I sell inventory and I have a custom inventory that I need to go to my vendor and purchase you want a custom surfboard or guitar or whatever that has a certain color to it or so I don't know then I have to order it from the vendor and I'm only going to order that custom thing if you're locked into the sale well how do I lock someone into the sale we collected down payment we collected deposit so when we collect the deposit we got paid before we did the work that's where the issue comes about in that situation you have a similar situation with rental property if you rent rental property you might collect this the last month's rent at the beginning as a way of locking people in in the event that they kind of left or something like that in which case again you got paid before you actually gave them the property therefore you didn't earn it and so you have this kind of the situation you also might have the security deposit which works basically the same kind of idea meaning I'm going to collect a security deposit which I'm going to give back to you if the property is in order when you leave again you have this money that you haven't really earned and that kind of situation the other way that this often comes about is that you might be in an industry where you are in a subscription model so it used to be newspapers magazines classic industry where you get paid before you do the work because they're on a subscription model and you have to give me the money before I start giving you the newspapers or magazines nowadays computer applications of course are running this way so this is quite common if you're in that kind of industry we have computer applications someone's going to give you money upfront and then you didn't actually do the work you're doing the work over the next year if it's a yearly subscription for example so that's these are all areas where we have this situation where instead of me invoicing and then getting paid what's going to happen is we're going to get paid and then we're going to invoice so in the deposit situation if I I'm going to get paid the security deposit on the surfboard the guitar the rental property and then I'm going to invoice in the future for the money I already got but that's reversed right so that messes up the normal flow which messes up my whole tracking process within kind of like the customer center up top so so that's going to be the issue or you're going to get paid in a subscription model a year's worth of subscription and then we're basically going to invoice or we're going to recognize the revenue on a monthly basis let's say right for the 12 months out of the year after we did the work after we actually gave someone access to the software or whatever that that we are providing so so then of course the question is well you might have a similar process where someone's going to take a job we have an estimate let's say the custom surfboard situation we're gonna say okay they want a custom surfboard here's how much it would cost they commit to it so we're going to create the sales order but then at the time that we create the sales order we also are going to receive a payment at that point in time now the old way that we used to do this in QuickBooks is when we receive the payment I would just record the receive of a payment and it would record it basically as an increase