 QuickBooks Online, delayed credit form. Get ready to start moving on up with QuickBooks Online. We're gonna be using the free QuickBooks Online test drives searching in our search engine for QuickBooks Online, test drives, selecting the result that has Intuit.com in the URL, Intuit being the owner of QuickBooks. We'll be looking for the United States version is what we will be using and verify that we're not a robot. Zooming in by holding down control up on the scroll bar currently at 125% on the zoom in. Remembering that in the cog dropdown we can toggle between the business and accounting view. Currently we are in the business view. We might toggle to the, I'm sorry, currently we are in the accountant view. We might toggle to the business view possibly at the end so we can see the locations of items under both views. I'm gonna go to the tab up top, right click on it and duplicate the tab as we do every time in order to put our major financial statement reports in them. Right click it on the tab again, duplicating again, going back to the tab to the left as the tab to the right is thinking and going down to the reports on the left and this time opening the balance sheet. Then I'm gonna tab to the right as that is thinking, go back to the reports on the left, open up the P&L profit and loss or income statement report. Close up the hamburger, scroll to the top, do the range change on the date range, 010122 tab to 123122, January through December 2022, run it to refresh it, tab to the left, close in the hamburger, scrolling to the top, same ranging on the changing, the ranges they are changing, 010122 to 123122 tab, run it to refresh it. And then back to the tab to the left, that's the setup process we do every time, hitting the drop down in the new button, we've been looking at the customer area, customer cycle representing the fact that at the end of the cycle, we expect basically money to be going into our account, to our checking account for goods and services provided to a customer. The easiest way to do that would be if we had the gig work and we're just getting paid by a platform like YouTube, we wait till it clears the bank, we record the deposit at that point in time, possibly with the help of the bank feeds or we have a cash based system where we had a cash register where we would enter the sales receipt first and then the deposit or we're in a system where we have to invoice the client because we have to do the work first, then invoice the client, increase in accounts receivable, then receive a payment and then we make the deposit into the system. Now we've been focusing in on these items down below, which are kind of more unusual items, the credit memo in essence reversing the sale and then we talked about a refund receipt and now we're going into the delayed credit. Now the credit memo traditionally would be in a situation, let's go to the float chart over here. Support accounting instruction by clicking the link below, giving you a free 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 then 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. And we're gonna try to sort out when you might use some of these different forms. So for example, if you're looking at the full accrual process, you've got the invoice, then we receive the payment, then we record the deposit. Let's say that we make an invoice and before we get paid, the customer says, hey, there's a problem. I want to reverse this or I'm gonna give you bad tweets or something like that. We're like, okay, we'll reverse it. Well then right here, you can make the credit memo which would reverse the transaction lowering the accounts receivable. However, if you put the invoice in, you got the received payment and you recorded the deposit already or you made a sale at a cash register, recorded the deposit and then the customer comes back and says, hey, reverse this or I'm gonna tweet at you something bad or something. And you're like, okay, then you gotta possibly issue them the money back at that point in time, which means that you could use like a check form, but that's when we talked about last time that you can issue them the refund receipt. So a refund receipt is kind of like a check form and then it's gonna decrease the checking account and kind of like a credit memo in that it should reverse the transaction entirely, but instead of reducing the accounts receivable, it results in a payment, a reduction basically to the checking account. Okay, so what about a situation where they've already paid us and we're like, okay, I'm not going to decrease, I'm not gonna actually issue a check but we'll give you a credit basically for a future purchase. So in that case, we have a couple kind of options that they've already paid us. We could issue them a credit memo at that point still because the credit memo will wind up usually reducing the accounts receivable because it's usually right here and we've reduced, but if they've already paid us, they don't owe us any money. So the credit memo will result in a negative accounts receivable, which isn't quite proper because it should be like a positive liability if we're gonna record it at that point in time, but that works quite well from an accounting standpoint because that allows us to track it in the accounts receivable and next time if we make another invoice for them, we can match it to that credit balance that is in place. So the other way you could think about recording it is instead of doing that, you might say, I'm gonna issue them a delayed credit and the delayed credit will not actually record the transaction at the point you enter it, but it will record the transaction at the future point when you create the next invoice. So then the question would be, should I be recording the transaction at the point in time that I issue the credit memo or should I record the transaction if they actually follow through and make a future purchase with an invoice in the future? So that would be kind of an accounting transaction that you would wanna think about. So we'll try to take a look at those two options. The other way that you might look at a delayed credit would be a situation. For example, usually you create an invoice and then you receive the payment, but you might have a situation where you've received the payment first, possibly like getting a down payment on a sale that you're gonna make. So now you've got the money first and accounting terminology, we call that basically an unearned revenue situation usually. But, and we'll talk more about unearned revenue in the future, but usually if you get paid first, you wanna record it as a liability. But again, we have this same kind of problem that if I use a liability account, that's not the account that we usually tie to the customers because in the future I wanna tie it to an invoice. So we're going backwards now, I have the payment and then I wanna tie it to an invoice. So oftentimes people will use the received payment here resulting in this credit kind of hanging there that we can then tie to a future invoice. So that's another area where you can use a received payment or you could try to use the delayed credit. If you use a delayed credit again, it's not actually gonna record the transaction at that point in time at all until it's gonna be applied to the future invoice. So which isn't exactly proper, usually you would wanna record the received payment but I've seen people use the delayed credit in that area. And I just wanna point that out. I don't think it's the best way to go. I would think you would wanna use the received payment to make that credit and then you can tie that out to the future invoice and you can also make periodic adjustments at the end of the period to break it out between the accounts receivable and the unearned revenue. So hopefully that's another way that you can look at it. And then you also might just have a situation where you're dealing with a customer and you're saying I will grant you a future credit if you make a purchase kind of thing. And so therefore if they decide to make a purchase that's when you apply the future credit. And I think that's when it's most likely properly going to be used because again, the delayed credit is not recording the transaction at the point you enter it into the system. So if it's not something that you're committed if it's something you're committed to you should think that you should record the financial transaction at that time with the received payment possibly or the credit memo. But if it's something that's not likely to happen in the future and you're not supposed to record it at this time but if it does happen you wanna take it into account that's when you've got this delayed credit which will kick in at the end. So let's take a look at a couple examples. First let's just do, I'll do this fairly quickly because we've seen these before. I'm gonna make an invoice and then receive the payment and then we'll do the credit memo and then we'll compare that to the delayed credit. So I'm gonna do the same thing we've seen before and I'll make my invoice. I'm gonna call this inventory. Inventory one on the item and actually hold on, I'm gonna make a new item. Inventory one, I'm gonna copy that. I'm gonna put that in the description. I'm gonna say the quantity on hand is 10. The date at the beginning of the period, reorder point is zero. The sales price, 1,000. It's gonna be taxable. The purchase description, same, 750. For the costs, cost to good sold. Same thing we've seen in prior examples. We're setting up the inventory item. They cost 750, we sell them for 1,000. So if I record this, it's going to increase the accounts receivable, 1,080. The other side's gonna go to sales by 1,000. The difference of 80 is gonna go to the sales tax payable. Inventory is gonna go down by the 750 driven by the item and the cost to good sold is gonna go up by the 750. Let's save it and close it. And if I just follow the transaction here and I go to my sales side here for my revenue cycle and then I look at my customers, let's just go directly to the customers, AAA, I'm gonna go into AAA, there's my invoice. Now let's say that they pay us on it. So I'm gonna say receive payment. We've got the payment, they paid us. Same day, that's fine. Whatever the payment, I'll say cash. I put it into undeposited funds. This then decrease in the accounts receivable going into undeposited funds. Now, if they didn't pay us yet and they reversed the transaction, that's where the credit memo would go. But now we're saying they already paid us. So I'm gonna say save and close. And then I'm gonna say, let's finish it off with a deposit. I'm gonna hit the plus button up top, deposit it, and then we're gonna say that's the one. And then I will deposit it, increase in the checking account, and the other side going to decreasing undeposited funds, the deposit's been made. So now if I go to the balance sheet and I refresh it, at the end of the day, the checking account has an essence going up because the accounts receivable went up and down. On the income statement, we know that if I run it again, there was an increase to the revenue account. If I go back to the balance sheet, there should have been an increase to the tax account for the sales tax. Inventory would have gone down. The sub ledger for inventory tracking by item also goes down and the cost of goods sold, the expense account related to the sale of inventory goes up. Okay, so then now I'm in the situation where they come back and they say, hey, I have a problem. I want you to reverse this transaction. Well, you've already paid us. So what can we do at this point? We could issue a check or an expense form, but we'd rather do something in the customer field. So if we're gonna actually issue them a refund at that point, we might use the refund receipt, which we talked about before. But we also might say, hey, look, if we'll just issue a credit, which means now I'm gonna have a credit outstanding that I can tie out to a future invoice in the future. So I could do that with a credit memo, even though it's a credit memo usually decreased in the accounts receivable, but this time it's gonna leave us with a credit still hanging there, or I can use a delayed credit, which means it's not gonna record the transaction until we actually apply the credit. Now, I think most of the time, the credit memo would be the way to go because you would expect that they would take advantage of the credit memo, and you should probably record it at that time. But if you don't think they're gonna do it, or maybe they might not, or the odds are that they won't or something, then maybe the delayed credit would be more appropriate because it won't be recorded unless they actually follow through with another transaction. So let's see the credit memo first. Let's do that option first and see what it looks like. So I'll make a credit memo for AAA, and then I'm gonna say it's for the same inventory one. We're just gonna reverse it exactly. And then same thing here, so it looks perfect. We're gonna reverse it exactly. We could have the same issue that we talked about with the credit memo with the sales returns and allowances instead of hitting the sales. I won't go into that in detail here. Look at the other credit memo one for that. If you don't wanna reverse sales exactly, I'll just say save and close this one. And so that reverses the transaction. So that should reverse everything exactly on all of our accounts over here, but it doesn't make a payment from the checking account here. It basically made a negative accounts receivable. So in the accounts receivable now, if I scroll down, we've got the invoice, and then we've got the payment, and then a credit memo. So now we've got this credit kind of hanging out here. And notice that this is kind of just the term credit can be kind of confusing because from an accounting standpoint, it just means two sides of the ledgers. The credit is the credit side of the ledger. But then from the accounts receivables standpoint from this AR account, which represents the customer owing us money, it's a debit balance account, which means that a debit balance is good for us. The business owner, because it's an asset, we expect to be paid, but it's bad for the customer because it means that they owe us money. So then when we say, we're crediting your account as a customer, we're just lowering, that we're just putting an amount on the credit side of the ledger. But from the customer's perspective, that's a good thing because that's lowering the amount they owe us usually or possibly in this case, it's representing the fact that they have a credit that they can apply to future purchases. So that's why credits tend to be good, like we see them as good from a customer perspective, but from a bookkeeping's perspective, it's just the left side of the accounts receivable ledger still. So they're still the same thing, in any case. So let's go back. Let's go back to the first tab here. And so now we can see this credit memo is kind of hanging out here and it's unapplied. That's the point. The transaction has already been recorded and now you've got this unapplied credit so that if I make a future purchase, let's say I make a future purchase with another invoice, let's say, for AAA and let's say they then purchase, let's say something else, let's say a pump or whatever and let's say they get like five of those. And then, so now we've got the payment. Now I wanna apply out the credit to it. So what I'm actually gonna do is record it which would increase the accounts receivable and then apply out the credit if the system doesn't do it automatically. So I'm gonna save it and close it and then there it is. So now we've got this invoice and it says it's paid already because the system already found the credit that was outstanding and applied it over which is beautiful, right? That's what we want to happen. Now if I go back into this invoice, you can see that it's marked off as paid because it's linked to the credit memo and then so you've got the invoice has already been basically processed in that case, right? So it's been paid off. So it's kind of a little walkie because you have to enter the invoice and then go back into it to show if any net amount is still outstanding but that's how the credit works. Now notice that if I go to the tab to the right, right click on it and duplicate this tab and then I go into the reports and we look at the closing the hamburger who owes you money and I'm gonna go into the customer balance detail report. And so notice that in AAA I've got this negative balance. That's not exactly right because it should be a liability because we owe them money, it's not a negative receivable. So it's kind of an issue that way. So you can fix that by just making adjusting entries at the end of the period and then record that as basically unearned revenue, a liability account. So this is kind of an unearned revenue kind of issue but from a bookkeeping standpoint, it's quite nice to record it under the umbrella of accounts receivable because we want to apply it to a future invoice. We have the same issue with other kind of issues with unearned revenue. Well now let's do it again but this time I'm gonna use instead of a credit memo, a delayed credit. So let's do it again. I'm gonna hit the plus button and say it's an invoice. This time I'm gonna do it for BBB and I'm gonna say save it and we'll just do the same thing and I'm gonna say this is for inventory one which has already been set up and so there it is, same transaction except for BBB. I'm gonna save it and close it and then if I go into my customers over here I'm gonna look at BBB which now has this invoice, then they pay us. So I'm gonna say receive payment. Let's say they already paid us and it's gonna be cash or whatever and I'll just put it directly into the checking account not deal with undeposited funds. So now they pay us with it. So I'm gonna say save it and close it, boom. Transaction recorded, they paid us. Now they come back in and say, hey, I wanna reverse the transaction. Again, we can issue them a check or an expense form but we would probably, if we're gonna pay them, give them the refund receipt which would be a credit memo about reversing cash basically or we can issue the credit memo which would record the credit at this point in time or if we think that they might not go through with the transaction, it's likely that they're not gonna actually make a future purchase. Maybe it would be appropriate to enter the delayed credit which isn't actually gonna record a transaction unless they actually follow through and make the transaction in the future. Again, I think most of the time if they're likely to do the transaction you should record it at this point with a credit memo. If they're not likely, then maybe the delayed credit would be the more appropriate thing because it doesn't record a transaction if you don't think they're gonna fulfill it. So then if they did the delayed credit, I'm gonna say BBB, we'll say, if you buy something else, we'll do this but they're like, whatever, I'm not gonna do business with you and we're like, okay, but we'll put the delayed credit in there. Hold on a sec. Do you want to leave without saving? Yes. So the customer is BBB. Okay, so there it is. We're gonna do the same thing. This is gonna be inventory one and so there's the transaction. Notice it's not recording the tax at this point in time because it will be applied out when we do the actual transaction when they do the actual credit. So this isn't actually gonna record anything is the point. So if I say save and close, at least to the financial statements, now you've got this credit here but if I look at the reports on the financial statements and I run this report and I go into the accounts receivable and I scroll all the way down, we see the BBB here on the invoice but we don't see the delayed credit, right? We've got it here but we're not showing that other delayed credit. So in other words, if I go back on over here and I go to this report and I run this report, BBB isn't on this report because there's no outstanding invoices. It's not showing the negative amount in here. It's not in here at all because it hasn't been recorded. So it's still gonna be able to apply. So the base, if I go back to the first tab, it looks the same over here. It's open because if we make an invoice, we can apply it out to the invoice but it's not actually being recorded on the financial statements until they take advantage of it, until they actually do that. So again, that would only be appropriate possibly, I would think, if they're not likely to do it but then if they come in and they do, so we could make the invoice directly or you could come up top here and we could make an invoice and then I'm gonna say this is for BBB, BBB and there it is, tab and then it's trying to pull in so I'm gonna pull that one in. So there's the credit and let's say we're gonna make a sale of something like pumps will sell like 1,000 of them. So there we sell 15,000 and then it's netting out the 1,000 up top. So I'm gonna, you could then pull this one up to the top if you want and say there's the 1,000 minus, I mean the 15,000 that we're selling minus the 1,000 both have the tax applied to it. So there's the 14,000 and then the tax applied down below. So what is this going to do? Well, it's an invoice, it's gonna increase the accounts receivable but by the net amount now of the 15,120, the other side's gonna go to the sales but only for the 14,000 after taking down the 1,000 here, the difference is still gonna go to the payable account and then the inventory is going to be going down by these pumps if these are inventory items but also we're gonna have the inventory units now of this inventory item being impacted at that point in time because we delayed the transaction for the inventory items here. So when we did the reversal, so that's a little bit kind of wonky on that and then the cost of good sold similar kind of scenario. So let's save it and close it, just check it out. And so now if I go to the balance sheet and run it, hold down control, scroll up. If I go into the accounts receivable, we can see the accounts receivable was impacted down here for the net amount, which makes sense. The sales side would be impacted by the net amount and then the sales tax would all work well. The kind of weird thing might be in the inventory item here if I go into inventory. Then we've got the notice you've got your inventory items which you would think if it was an invoice, it would be going down right there but then you also got your inventory item here that is going up because it's kind of reversing with the credit memo. So if you're dealing with inventory, you gotta be a little bit careful on when you're gonna be reversing it or adjusting the inventory on that one. That's when it gets a little bit strange. If I go back on over and then go to this tab, this is the customer detail. Let's right click on it and duplicate it again and look at the inventory summary report. And so I'm gonna go to the reports on the left hand side and then go to the inventory, inventory valuation summary. And so now we've got our inventory notices back up at basically 10 at this point in time because it reversed, assuming we got the inventory back at that point. So that's where it's a little bit strange. Okay, so let's go back and look at the other kind of option that we might use. I'm gonna go to the first tab, close this back out and open the hamburger that we're gonna receive a down payment. So we're gonna get paid before we issue the invoice which would normally be unearned revenue but we're gonna record it with a receive payment form which will basically make a negative credit. So I'm not gonna make this for customer CCC this time and CCC payment doesn't have an open invoice. So we can't decrease the accounts receivable. Instead, we're gonna put the accounts receivable in the hole, a negative accounts receivable which isn't exactly proper but it works quite well because we can then apply it to a future invoice that we plan to be making. So we'll talk more about this later but when we get into this unearned revenue issue but this is one way that you can do it which works well cause everything's in the accounts receivable. So we're gonna say it's gonna deposit, I'm just gonna put it directly into the check-in account here and I'm gonna say that the amount is, we'll just say $1,000. Okay, so let's say save and close this and then save the credit. So now we've got in CCC, I'm looking at CCC's customer account, we've got this payment credit that we can apply out into the future. So if I go to the balance sheet then and I go back to the balance sheet and look at my accounts receivable, let's refresh this running it and the AR scrolling down. We've got this receivable, it decreases the receivable for CCC, scrolling back up. The other side went into the checking account and if I look in the accounts receivable sub ledger and run this, it looks not quite right because we get this negative receivable. That's kind of an issue because it should be a positive liability like unearned revenue but the negative receivable works well because we're able to track everything in the receivable so oftentimes that's done in practice and we can make adjusting entries at the end of the period to make the liability if there's any of these negative receivables and then reverse it. We'll talk more about that later but that's one way to record it. And then we can go to the first tab and if they make a future purchase or something like that, then we can apply out this payment to it. So then if they had an invoice that we're gonna create in the future, I can invoice in the future and then say that we're gonna say that this is going to be for CCC and let's say that they're gonna then make a purchase of something that we're gonna apply that out to concrete, whatever it's gonna be, 1,000 of them at $5 or something, so 5,000 and then I'm gonna apply out that overpayment to it. So I'm gonna record the invoice and then apply the two things and then apply the two things that's kind of a two step process. So I'm gonna save and close it and then you can see in the detail here that the payment has already been applied out. So it kind of did it automatically. So I can go back into the invoice now and it has applied out. You can see the link up top, one payment made of $1,000 and if I go down into the detail now, it's applied out. So if I wanted to present the invoice to someone, I can record the invoice and then go back into it so that I can then present them with the amount that still do the 4,400. So we'll talk more about that in the future. The other way you can do that is you can say, okay, instead of me recording the negative receivable that shows up, I'm going to assume maybe they might not follow through with it and I'm gonna say the plus button up top and I'm just gonna record the original item with a delayed credit, which won't actually record the credit as it did when I made the receipt payment but it will record it later if they follow through, which I think again, would only really be appropriate if there's a likelihood that they're not gonna actually follow through with it. So I'm gonna say, okay, this is gonna be for DDD, I'll say and then we'll say save it and let's make the product, let's say that we're gonna have then down below that it's gonna be, I'll just make a new service item here so I'm just gonna say or say discount or something like that. I'll say tab, I'm gonna make it a service item. I'm just gonna call it a discount and boom and then I'll say it's for $1,000 and the account it's gonna hit, it's gonna be the services, so I'll keep that. I'm gonna say it's non-taxable, let's say it's a non-taxable and then okay and then I'll save and close it. So now we've got that and $1,000, boom. So let's go ahead and save that so I've saved that and told them that we can apply that out possibly to the future. Let's go down to DDD where we now see this $1,000 item here. However, when I go to the balance sheet and I run the balance sheet and go into the accounts receivable, it is not showing up down here in the AR, right? If I go to the accounts receivable sub ledger, run the sub ledger, I don't see that negative balance as I saw with this item here, right? I don't see anything for DDD. So it didn't actually record it is the point. So it's only gonna be recorded if they actually follow through with the transaction. So then I'm gonna go back on over so it's down here and it says it's a credit so it still shows down here but that's where the difference is that you gotta kind of be careful of is it recording it when I put it in place or not? And so now I can apply it out and I can create an invoice with it if I chose to create an invoice with it at this point in time. And again, usually you gotta be careful with it because when you apply it out, you gotta kind of apply the whole thing out oftentimes. So I need to purchase something that's larger than that amount like pumps and then we'll do 15 or 1,000 of them again. And there we have it. So now it's applying out. It should be applying the tax only to not to the discount component here when it does the tax. So it's a little bit different on the tax calculation. I'm gonna pull this up to the top. And so now it's included in this calculation taking the 15 back down to 14 and then applying the tax out to it at the 1,200. So if I save and close that, now it's basically been recorded with the invoice and has been included at that point in time with basically the invoice. So it's a little bit tricky in terms of when you would use that delayed credit. I don't think it's something that people are gonna use all the time. And I think people sometimes misuse it when they should be recording like unearned revenue or like a negative received payment could also work and then do adjusting entries or a credit memo that results in a credit when you actually record the credit. And again, I think it kind of depends on whether or not you expect them to follow through and actually take advantage of that credit or if the likelihood is they won't do that for whatever reason. So do you have to put it on your books at the point in time you issue the credit or not. So that's my idea on it.