 QuickBooks Desktop 2023 Advanced Customer Payment or Unearned Revenue Method Number 1 Let's do it within 2-inch QuickBooks Desktop 2023 Support Accounting Instruction by clicking the link below giving you a free month 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 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 QuickBooks Desktop, get great guitar practice file We started up in a prior presentation going through the setup process we do every time maximizing the homepage to the gray area In the view drop down we got the height icon bar, open windows list checked off, open windows open on the left hand side Reports drop down company and financial, let's open up the profit and loss, the P and the L Range and changing, 010123 to 123123 Customize it, fonts and numbers, change the font to 14 Okay, yes, okay, let's do it again with the balance sheet reports drop down company and financial this time The balance sheet standard, the other big financial report, customize, range change, 010123 to 123123 Fonts, numbers, change to 14 Okay, yes and okay, that's the setup process that we do every time Now this time let's jump on over to the homepage, we got a bit different of a scenario we want to be running We're looking at the revenue cycle, we thought of three general ways the revenue cycle often works Now we're going to throw in like a fourth way that it might work in specific types of industries Now remember, you might have a very easy revenue cycle where basically you work on gig work or you get paid by YouTube or something You wait till something clears the bank, you've recorded it with a deposit form or possibly with the use of the bank feeds That would be the easiest thing to do if you have that kind of business to do that with The second easiest way is to use a cash based system, notice what we just talked about is a step further from a cash based system In which case you're not really doing a full service cash based accounting system But instead relying on the bank to record the deposit A full service cash based system would be one for example if you had a cash register situation like a food truck type of situation And people are paying you at the point in time, you give them the goods and services and then you make the deposit And then you got the full accrual system where you have to do the work first Like with an accounting office, a CPA firm, a legal firm, landscaping for example Then you might issue the invoice, increase an accounts receivable, then receive the payment and then make the deposit What if however, you're in a situation where you get the money first So now instead of invoicing them and then receiving the payment, you're going to get the payment first When might that happen? Certain industries that's going to be the case like all the time, that's their business structure So if you're in like a newspaper business or selling magazines That's the traditional kind of scenarios where this would be the case Then you get paid first and then you issue them the newspapers So you do the work after you get paid That's opposite to what traditionally happens in most businesses where you do the work first or at the same time And then get paid So if you get paid first, then you could record it as revenue when you get paid But that's kind of deceiving because you haven't really earned the revenue So what you should do properly from an accounting standpoint is put it on the books as a liability Unearned revenue because you owe something in the future for the money they gave you You either owe them the money back or hopefully you do the work in the future Earning the money that they have already given you So that's one scenario Other businesses they have like a situation where that might be part of their business So if you have a rental company for example, then you might have the last month's rent You might collect upfront or a security deposit is a similar situation You've got the money, you haven't earned it and or you don't expect to hold on to it forever Because when the last month comes up or when they leave Then you might owe them the money back And therefore it's not revenue but you got to record it as a liability That's similar to kind of unearned revenue type of situation Also note that when we talk about like the example of a newspaper Many software companies have a similar example now because the subscription model is designed in a similar fashion So you might say if someone pays you a year in advance for a subscription You record it as revenue at the point in time they give you the money But you really haven't given them anything for that money they've given you So from a full, a cruel service accounting system You should record it as a liability until you actually provide the service of them using the software or whatever And that's when you should record the revenue from an accrual standpoint So another area that this might happen and this would kind of fit into our scenario here Is where you're going to be picking up a big job or you're going to be purchasing something that is specifically for a client It's custom to the client and you ask for a down payment upfront before you proceed with the work to lock them in to completing the sale So for example our guitars we might get a large down payment upfront And then we're going to buy the guitar custom for them and then when we give them to guitar to them Then we can receive the rest of the payment at that point in time So those are some general scenarios Now if I go to the balance sheet logistically how should this work If you've ever worked kind of problems in accounting classes courses Then traditionally what will happen is when you get paid you're going to increase cash And the other side is going to be going to some kind of liability account Called unearned revenue or deposit or something like that And then when you earn the money you're going to reduce the liability account and record the income Not when you receive the money but when you completed the work That's the traditional way that we want to see it However logistically we run into some problems with software with relation to that Because notice if I have a liability down here called unearned revenue The liabilities are usually related to vendors not customers So I don't have the same sub ledger down here to track a liability The sub ledger when I deal with customers is usually related to accounts receivable So logistically there's a couple ways we can do this in QuickBooks to make it easy on the bookkeeping side of things One is to create a negative receivable Now again that's not exactly proper for external financial reporting But it does make it so that when I run a report that's going to be the reports drop down customers and receivables And I see the let's say the customer balance detail report let's say And let's customize it and make it a little bit larger so we can see it a bit better Let's make it 12, okay So then I'll be able to see it in here and I'll also be able to track it in the customer center Which is where I want to look for any information about the customers And we can also then at the period end make period end adjustments to break out the liability component in like an adjusting entry process That's the easiest thing to do. That's what we'll do here The next step will do a little bit more complex of a step in order to break out the liability as we do the data input So bear with me if you want to check out both of those methods So this one again if I'm going to go back to the to the homepage if you have a counting background This is going to feel a bit unnatural at first but I hope logistically you can see why some companies will do this in practice You will see this and then we'll see another way another work around that could work And remember that your goal is when you're looking at it from an accounting standpoint If you're not a bookkeeper but you're an accountant like an auditor Then you might not be taken into consideration the ease of the connection of the reports from a bookkeeping standpoint Which obviously if you're on the bookkeeping side of things and you're trying to contact the customers all the time That's what your major concern is as well as the creation of the financial statements Our goal between the two of them is to try to make the bookkeeping as easy as possible and make the financial statements Correct on an accrual basis typically which might include adjusting entries that are going to be necessary So that we can do the bookkeeping as easily as possible and then make periodic adjustments at the end of the period Okay, so what we're going to do is I'm going to assume that we got a payment I'm going to enter the payment before I enter the invoice so we're going to do this backwards I'm going to say receive payment and we're going to say this is coming from Anderson I'm going to say Anderson which is a customer we already set up Note there's no invoices down here for Anderson so I'm not going to be able to tie it out to invoices Which is normally the use of the customer payment form I'm just going to keep it cash for the purposes of the problem say $300 We're going to say that this happened on 0-2-25-23 and it's going to go into undeposited funds And there's no invoice that we're going to creating So we're imagining we got the $300 for like an advanced payment on a guitar that we're going to give them in the future So we can imagine they called us up they said hey I want this particular guitar I saw it remember I was in the shop before and it was like green one or whatever Don't sell it we'll say well we'll hold on to it but that's a popular guitar Maybe you pay us now early right and then they're going to give us money in advance In order to hold on to the guitar and possibly come in later for the rest and pay for the rest of it So we'll say okay we'll hold on to it for you if you give us the $300 So if I record this then what's it going to do Well it's going to affect or decrease the receivable but it's got no invoice to tie to And therefore it's going to apply like a credit or a payment that's going to be able to match up against the future invoice And then the other side is going to go to undeposited funds So you have no record the new transaction do you want to record it now You have you have not recorded I'm going to say yes and then a credit for the overpayment will remain on the customers account You can click print credit memo to save the transaction and print a credit memo Click okay to save the transaction or click cancel to go back I'm going to say okay I want the credit there and then I'm going to go to the balance sheet Notice in the balance sheet in the accounts receivable it didn't make accounts receivable negative because this is just one item But it did lower the accounts receivable and it's got no other invoice to match out to I can see that more clearly on the sub ledger if I close this out And I go to the customer balance detail and I look at Mr. Anderson Notice this ties out to this this ties out to that this 300 was input and it's got nothing to tie out to There's no invoice to tie it out to and I have a negative balance in Anderson That's not right technically from a financial statement standpoint because that means it's a liability If if I owe Anderson money or the guitar that it should be a liability of unearned revenue or something like that So what's this doing it's understating the accounts receivable the accounts receivable should be higher by the $300 The total down here 19 511 50 is actually understated But it still matches what I have here what should happen is this should be higher by the 300 And then I should have a liability down here unearned revenue or something like that for 300 But again I can't really track the unearned revenue by customer which is what I want to do from a bookkeeping standpoint If I go back to the homepage I can also go to the customer center here here or by going to the customer drop down customer center And I can go to Mr. Anderson and I can see in here then the transaction and the $300 payment that we have That's not tied out to anything and if Mr. Anderson called me and tracked this and I'm trying to figure out what happened I want to see this data in the customer area that's why this works you know fairly nicely All right so that's and then what's going to happen in the future is of course they're going to we're going to get the guitar And then we will sell the guitar to them with an invoice but we'll do that in a future presentation Let's add in a couple other ones and we're imagine another person comes in a customer comes in Eric music and says Hey I heard you were you know holding on to some guitars for my good buddy Mr. Anderson I would like that blue guitar or whatever so hold on to that I only have $200 right now And we're like okay you give us the $200 we're hold well we won't sell it that's a hot seller But we'll hold on to it for you if you give us $200 right now so we're going to do the same thing This will make a negative amount for Eric music that we'll have to tie to the invoice So we're going to X out to close it and say yes and then okay and then let's do one more And we'll say receive payment one other person comes in this become people are saying this is good deal here I want this is $250 Sam the guitar man same thing we're going to say it's going to give us $250 for another guitar All right and so we haven't given them the guitar they're going to they're going to come back and get it later We're going to say yes okay so we've got these three advanced payments so now if I go into the balance sheet again And I go into the accounts receivable now you've got these three people that gave us payments they don't tie out to anything In terms of the invoice I can see that more clearly by going to the customer balance detail report We're now we had Anderson with this Eric music now has this negative 200 and we have Sam the guitar man at the negative 250 So what's going to happen in the future is once we invoice the client then the invoice will match out and we can apply Say the 250 to the invoice and everything will be fine notice this is only in other words a timing difference However if we crossed over a reporting period at the end of the month or the end of the year then to be accurate on an accrual standpoint We would want to go through here and say okay I'm going to take all these negative balances and make an adjusting entry to increase the accounts pay up The accounts receivable to the proper balance and then increase the liability so in other words logistically it works well it's only a timing difference It'll work itself out fine I can track everything from a bookkeeping standpoint in the customer section which is what I want to do from the bookkeeping standpoint And if it hasn't reversed itself by the point we report the financial statements into the month into the year then we could just do an adjusting entry So we want to be notified what we are doing to the accountant so that they can make any kind of period and adjustments to properly break out the AR versus the liability So that would be the concept of doing this method of it So let's go back to the balance sheet and the other side is going into undeposited funds for the 750 at this point So let's go ahead and just make that deposit taking it out of undeposited funds putting it into the checking account home page So this deposit area is working just like it normally would if we did the invoice first and then the receive payment We now have the receive payment going into undeposited funds Those that number three represents the three amounts that we're going to imagine we go to the bank and deposit in one group sum Going in there I'm going to check all of them off There they are I'm going to say okay so the total deposit is going to go into the checking account at 750 It's going to decrease the undeposited funds by each of these individual amounts bringing it to zero Let's save it and close it and check it out. Is the date right? I think that's the right date. Let's keep it there Okay so I'm going to go back to the balance sheet and then in the checking account double clicking on the checking Checking out the checking we've got the deposit 750 on that one lump sum line item And then the undeposited funds is gone if I want to see it so I can drill down on it I can customize I can go to the advanced stuff I'm going advanced here people watch out active active cells okay So then undeposited funds I can drill down on that and so there we have it so then it takes these three out Even though they were the same one deposit because there were three components to it so that we can take and tie In the undeposited funds the increases and the decreases so that's what we'll stop it here Next time then of course we'll make some invoices to see to see how the undeposited funds will will then match to the invoice And at the end of the month we'll do some adjusting entries to show you how you might make an adjustment to correct Any accounts receivable that hasn't hasn't completed the cycle we have an invoice for the deposits yet And recording the unearned revenue so we'll do adjusting entries and reversing entries during that time so you can see how the whole process works in this format And then next time we'll also take a look at a different way that you might record the unearned revenue So let's just open up a trial balance to see where we stand now and we'll just check our numbers So we're going to go from 010123 to 123123 I'll customize it I'll bring the font up to 16 this time up a notch to 16 It's getting a long trial balance we should go maybe I shouldn't go to 16 anymore but any case you can see where we stand if anything's not tying out You can change the date range to see if it's a date issue drill down on it making a change is necessary We'll look at a transaction detail report at the end of this month of data input which will further allow us to check and hone down our numbers