 QuickBooks Online 2024. Apply customer deposit or credit to an invoice. Get ready and some coffee because we're going to make our books shine with QuickBooks Online 2024. Here we are in our Get Great Guitars 2024 QuickBooks Online Sample Company file. We set up in a prior presentation opening up the major financial statement reports like we do every time the report's on the left. In the favorites we're going to be right clicking on that balance sheet so we can open a link in a new tab. Right click in the P&L, the profit and loss to open a link in a new tab. Same thing with the trial balance and then we'll go to that middle tab. Close up the hamburger. Change the range. We're going from 010124 to 022824. I want to see it on a month by month side by side so we'll change it. Run the report. Tab into the right. Close in the hamburger and change in the range. 010124 tab, 022824 tab. Selecting the month by month breakout to refresh the report. Tab into the right and repeating the process. One more time. 010124 tab, 022824 and month by month on the breakout. Run it to refresh it. Let's go back to the balance sheet recalling what we did in a prior presentation which was deal with the fact that we have a customer deposit or otherwise known as unearned revenue situation. Let's jump over to the flowchart just to recap what this situation looks like. First a word from our sponsor. 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 crunching numbers is my cardio product line. Now I'm not saying that subscribing to this channel crunching numbers with us will make you thin fit and healthy or anything. However it does seem like it worked for her just saying so yeah subscribe hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. This is a desktop flowchart but we're using it for online because the flow will basically be the same for the accounting process. So if we're on the revenue cycle we expect money to be coming in at the end of the revenue cycle one way or the other the general cycles we have looked at would be the easiest cycle where you just get paid by youtube or something you wait till a deposit happens and hits your bank and you just record it as income possibly with the bank feeds using that method using a deposit form or you're at a cash register in which case you're still on a cashed based system you're getting paid at the same point in time you're doing the work but it's a little bit more complicated because you're generally going to want to record the sale not when it hits the bank but when you record the sale for internal control purposes oftentimes putting the money into a clearing account so that then you can deposit it into the bank in a format that will match what's on the bank statement or you could have an accrual method in which case we typically do the work first like a CPA firm an accounting firm a law firm a landscaping company where we do the work we invoice the client recording revenue here track accounts receivable then we receive the payment and then we make the deposit but we could have things go backwards sometimes in which case we get the money first what if we get the money before we do the work that doesn't typically happen with most businesses but it's quite common in some businesses such as the classic one being the the newspaper business that's the classic textbook style which again it's kind of outdated because the lame legacy media with their lame leg on the legacy media possibly is selling less newspapers these days but you have a similar subscription model for a lot of applications like computer applications these days which have a similar concept you pay for it upfront they haven't yet provided you the application they're going to give you the application possibly for the next year you paid for it up front in that case what has really happened is they got the money but they haven't done they haven't earned it yet so you should be recording it as basically a liability any kind of rental property similar kind of thing the rental property might have last month rent that they want to collect upfront or a security deposit which is a similar situation where you get paid but you haven't yet done the work and therefore it shouldn't be revenue because you haven't earned it even though you got the money so what do you do in that case well we're gonna one method the easy method for a bookkeeping standpoint would be you record the receive payment even though you don't have an invoice to link to the receive payment as we know in our mind what's the thing that is affected with receive payment it decreases accounts receivable but there's no accounts receivable for that customer therefore for that customer it makes a negative accounts receivable which isn't exactly correct because we should have a positive liability but from a bookkeeping standpoint works quite well because we can easily see that in the customer center as a credit to that account that we can then tie to the invoice when we finally earn the revenue so let's go back on over here just recap what we did last time we have in accounts receivable these receive payments that we put into the system let's take a look at the sub ledger for accounts receivable go into the tab to the right right clicking on it duplicating the tab and then we're going to go down to the reports left hand side close up the hand buggy and then scroll down so who owes you let's go to the customer balance detail and we're going to say then we have some of these that we entered this payment in for like this one for example Anderson so so internally that makes sense from the bookkeeping standpoint because if mr. Anderson contacts us we're going to say yeah it looks like you have a negative uh ar which is basically a credit that we can apply to your future purchase because what we did is say Anderson came in wanted a guitar we said hey look we'll order that guitar for you but you have to give us a down payment first before we commit to it so they gave us the down payment and now we're going to order the guitar and you have a credit on your books and once we get the guitar we will provide it to you and apply out the credit with Eric music we had a similar kind of situation so we have these negative amounts in here these negative amounts are not exactly correct from a financial statement standpoint due to the fact that we shouldn't have a negative receivable but rather a positive liability however the income statement is still correct which would be the primary form needed for a small business if reporting taxes on a schedule c and if we needed to adjust this for external purposes then we can do an adjusting entry decrease in accounts receivable increasing the liability periodically we'll talk about how to do that in a future course or section now let's complete the process and say okay mr. Anderson comes in we got the guitar and now we're going to sell it to mr. Anderson before we do that i'm going to put one more step in here and imagine that before we made this payment we made an estimate so in the full process you might have Anderson coming in saying i want this guitar we say okay we don't have it we're older it for you but we need a down payment and then the question is well how much is the down payment well you can make a mock invoice and to see how much it would cost and then collect like 10 percent of it or something like that or you can create an estimate which would be a common way to do it so let's go to the first tab and imagine we're going to make the estimate well so we're going to the customers the customer center sales customers and then if i go into mr. Anderson there we have it so now mr. Anderson has a lot of information but that 300 is clearly the outstanding balance which is a credit balance which could be applied to a future purchase such as in our case the invoice i'm going to imagine we go back in time and we first made the estimate so anderson's in our shop saying i want this crazy plaid pink guitar and we're like okay but you're going to give us a down payment because we don't want to get stuck with that thing so we're going to say this is going to be anderson uh guitars let's make an estimate we'll tell you how much it costs and then we want you to give us a down payment so we're going to be like okay uh that looks good exploration date i won't have one and then down here we're going to say the product what does he want he wants an an e p s h we're going to say and for whatever reason he wants two of those we're going to say and then we're going to say that he wants a elp that we're going to have to order or reserve for him particularly and we're like okay we'll save the guitar or we'll order the guitar whatever we have to do that comes out to the 1300 but i'm going to do the generic five sales tax so notice the estimate allows us to calculate the sales tax so we're going to say that's great it's going to come out plus the sales tax at 1365 then i could use this number to then calculate the down payment maybe like 10 percent of that or 20 percent of that or whatever our policy is so that's how we might do the calculation of the sales tax to then make the payment noticing that the estimate doesn't actually record anything this is just an estimate internal form no impact on the financial statements it's similar to another form that doesn't have impact in that that being the purchase order those are the two forms we've looked at thus far that don't actually impact the balance sheet the income statement so let's go ahead and save it normally we would save and send it but i'm just going to save and close it here let's say just save and close and boom i'm going to close that all right so now if i look at mr anderson we can see that we have the outstanding estimate and we've got the payment so you can imagine this happening from someone else that was in the shop that took down mr anderson's estimate and collected the down payment and then a different bookkeeper comes in and now mr anderson has the guitar and we're selling it we we can see clearly what happened here we're like oh yeah you as an estimate it looks like we made an estimate and then there was a three hundred dollars it's a credit that looks like it's going to be applied to the future purchase that we can make from the estimate that was your down payment is that is that right so pretty much transparent it is from the bookkeeping side of things so let's do that now so now i could go into the estimate like i could go into the estimate and say now on on the bottom of the estimate i have the capacity to convert to an invoice so i'll convert it to an invoice and so now we got the actual invoice that we're going to be putting in place the estimate has been pulled in so good thank you i'm going to close this up and it's going to keep on bringing it back i think but we're going to try to close that up on 225 okay so we'll keep that we've got our invoice being created and then it just pulled in the information for our invoice now notice what it did not do down here we have the same look as the estimate did it did not apply out the credit for us so what happens is we're going to record it and then we're going to tie out tie out the credit and go back into it so if this was the invoice i might i wouldn't basically email the invoice as it is thus far but rather record it and then apply out the credit and then we'll have the balance at the bottom noticing that when we look at the balance at the bottom it's going to result in the same journal entry the journal entry just like any invoice journal entry it's going to be saying increase accounts receivable the one three six five for the total amount the other side's going to revenue one three zero zero the difference sixty five going to the sales tax payable and we have a decrease to the inventory not by this dollar amount but by the cost known by the item cost a good sold expense related to us selling the inventory is going to be going up net impact on net income one thousand three hundred minus the cost a good sold and we'll have an impact on the accounts receivable broken out by customer and the inventory broken out by units of inventory so what about the three hundred that's already been given to us well it's already been recorded it's already on the books so if i was to record the three hundred here on the invoice it would just be an informational documentation to to then show the amount that is still that is still due it's not going to affect the actual journal entry all right so let's save it and close it and see if i can explain that further so now we have then the the amount of the one thousand three sixty five of the invoice and then we've got the ununapplied amount up top now if you have the settings sometimes the settings in quickbooks used to be that the default would be applied out basically automatically but a lot of times you may not want it to be applied out automatically so so i can then go back into this one i'm going to say did did it let's edit this view on this credit and if i go down into it now i can apply it out so there's the three hundred i now have the invoice that i can apply it to and so i can say okay i want to apply it to that invoice just like i normally would but now i'm going back into it to apply it out so these two things are connected now so now if i save and close this what's this going to do by the way nothing new in terms of debits and credits it's only internally something that's happening new that the transactions have already been recorded the balance sheet and income statement already impacted now what is happening is i'm just tying these two things together the payment being a tie to the invoice so once i do that then this amount is now closed and i can see on the invoice that it has been part of it has been paid so if i go into it we can see the activity it's open and then we paid it has a payment item there let's go into the edit then if i go back into the invoice this way and then go to the bottom of the invoice you can see now that we have the 300 applied and we have the amount that is still due so again this bottom bit is important in order to give it to the client so you want to make sure that we apply out the credit so when i give it to the client we say yeah you still owe us the 1065 however this bottom bit has no impact on the actual journal entry because that 300 has already been recorded and therefore we that's why we had a negative accounts receivable so when i record this 1365 increase to the receivable and net it out against that negative receivable that's why we're going to end up with this 1065 in our our balance right but i'm not recording this 300 okay i think hopefully that was clear it's kind of confusing but from an internal standpoint you could see everything is basically tied out and you still have this open bit for the invoice which you can now basically collect on what's the impact on the financial statements let's look at the balance sheet and we're going to say that in the a to the r the our account we have then did did did we've got the accounts receivable here the 1365 for the full amount and it's not being decreased by the 300 right that's the full amount if i go into it which i'm overstressing here so from that amount not that amount all right if i close that out and i go back to the income statement and say the income statement i would like to make a statement about my income i want more income that's my income statement okay sales of product let's go into the sales of product and then we're going to say that we had then the invoice down below for anderson of those items so those are the sales price not impacted by the deposit and then if i go back then the difference between those two is is just like normal in the sales tax payable and then we also know that the inventory is going to be going down so if i go into the inventory we can see that it is going to be going down not impacted by the by by the 300 that we've received as a deposit it's not impacting the journal entry and then the other side is going to be on the cost of goods sold so if i go into the cost of goods sold we can see the decrease or the increase in the in the cost of goods sold which is going to decrease the net income net impact being revenue minus the cost of goods sold and if i go into the accounts receivable we'll have the sub ledger for the accounts receivable over here so sub ledger now for the a to the r for mr anderson let's refresh it and you can see it's been removed uh that that amount well we have the open portion of the invoice here's the original amount of the invoice here's the open portion 1065 and if i scroll to the bottom 20 000 426 50 is what ties out to the balance sheet 20 000 426 50 and notice now we don't have a timing difference for mr anderson anymore if i go back over here just note that now we have we don't have a negative amount in here it's only when we have the negative amount before we complete the transaction that we have a problem in terms of not exactly correct financial reporting having a negative receivable for a particular customer versus a positive liability we no longer have that once we issue the invoice because now we have a normal accounts receivable that we need to be continuing to collect on all right so i think that method actually works quite well and again if you have this negative amount you can kind of fix that periodically which we will do in an adjusting entry process in a future course or presentation but a lot of people some people think that that they instead of focusing in on making things easy on the bookkeeper and then making just doing an adjusting entry at the end of the period that we really need to get a system where the financial statements are properly recording this as a liability uh when the transaction happens rather than making a periodic adjustments so we have some workarounds which i think are a little bit more difficult on the bookkeeper but that actually record it as a liability when we make the transaction which makes it more proper from a financial statement reporting purposes as of the point in time that we get the the the prepayment so we'll talk possibly about another method in a future presentation and you can choose whichever one you think is best for you which might be dependent upon the industry that you are in right because you might choose a different like if you're in an industry like this one where we have a guitar and we're getting a down payment on the guitar then i think this negative receivable works pretty well but but if you're in a different system where like you are all of your revenue is is unearned revenue then because you sell like newspapers you have a the lame legacy newspaper sales or something like that or you have software then uh then then maybe that it might be a little bit different because then all of your revenue when you first receive it is going to be unearned and you'll have to then calculate how much of it has been earned so possibly it might be a little bit easier to do a different method in that case possibly but even then i think this method still you know works pretty works pretty well but we'll test out the other method later so here's our trial balance so if your numbers tie out to these numbers great if you're working along if not try changing the date range remembering this is the balance sheet on top of the income statement assets include checking account accounts receivable inventory investments payment to deposit prepayment accumulated depreciation contra asset furniture and equipment and then liabilities who has claimed to the assets the other side of the coin being liabilities and equity liabilities starting with accounts payable the visa we owe the sales tax we owe to the government the loan payable we owe to the bank the payroll taxes we owe to the government and then our portion of the assets in equity including the investment owner investment that's our equity account owner's equity the retained earnings account and then the income statement where we have the credits minus the debits credits our income debits our expenses credits should be winning overall in dollar amount if we have income and not a loss if we squished this down to net income and then added it to our equity account of owner's equity which is the equivalent of retained earnings then we can see that all of this can be squished down to one equity number which is the balance sheet number of owner's equity otherwise known as retained earnings if it were a corporation we can see that by changing the date one day up 010125 to 010125 let's run it and we can refresh it and then you can see that we squished it into one number there hopefully demonstrating that the income statement is a story backing up the bottom line of the balance sheet which if you reorganize the accounting equation would be assets minus liabilities equals equity which would be the book value of the company and the income statement tells you a story about how you got to that position going back say usually a year in time