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Gonna zoom in a bit holding down control scrolling up on the mouse wheel at the 175% zoom in we're going to be opening up the demo file but we'll do so by resetting the data and opening it up going to reset the demo then it's going to open it up so we don't have the same stuff in there that we did last time really love that feature by the way going to hide this item here opening up our major financial statements in a new tab like we do every time right click in the tab up top and duplicating duplicating the duplicated tab by right clicking and duplicating again then go into the middle tab accounting drop down instead of going to the reports I'm just going to go right into the favorites right here to the balance sheet which might be a little bit faster tap to the right and then we're going to go to the accounting drop down this time the income statement right there that's in our favorites it's the start report back to the balance sheet changing the date range in the drop down we want to have a custom range and going on up up here to the 2022 2022 and the 31st of 2022 updated that's my auctioneer voice updated the file data back to the first tab okay so now we're going to enter an invoice so that we can receive the payment just a quick recap we're looking at the revenue cycle the accounts receivable cycle the customer cycle which at the end of the cycle we expect generally to receive money for goods and services we provided quick recap of the different structures you might have depending on the industry you're in gig work for example you might be able to just turn on the bank feeds and wait till something clears the bank and then record the deposit and revenue but in a more difficult kind of cashed based system a step away from the ease but still cashed based would be like a food truck situation where you get paid at the point of time you provide the goods and services but you can't really wait till it clears the bank to record the sales transactions or this time we're focused in on the accrual system which might be applicable in like a bookkeeping company or a accounting firm a law firm landscaping something where you have to do the work first build the client invoice the client and that results in accounts receivable going up and then we're going to have to receive a payment on that that will then be deposited into the system so last time we focused on the invoice this time we're going to be focusing in on receiving the payment okay so to do that i'm going to make another invoice we're going to make the invoice again but we'll make a little bit more simplified one this time so i'm going to hit the plus button have an invoice just this is the first part of the process a customer again and so everything looks good but down here i'm going to make a new item just so we can see the item but i'm just going to make it a service item so we don't have to deal with inventory or sales tax that'll make it easier so i'm calling this item let's call it two since we did item one last time item two we'll say it's a service item so i'm not going to do this one so i'm not going to have a purchase i'm not going to track the inventory i'm just going to say the unit price is a thousand dollars or whatever and then the sales account if it was uh i'll just put it to sales revenue of some kind we're not going to deal with tax at all we're just going to say tax uh no no tax we'll just say no tax and that should be good so let's go ahead and save that so there's the thousand dollars this one it's going to be an easier kind of invoice it's just going to increase the accounts receivable due to it being an invoice the other side going to revenue driven by the item here no inventory you have to deal with no sales tax beautiful easy let's go ahead and approve it instead of saving it as a draft and all that we'll just approve it right here because we looked at all that other stuff last time we're not focusing in on the invoice this time we're focusing in on the receiving of the payment so if i hit the drop down here in the business drop down and we go into the invoices we can see that invoice has now been populated if i just take a quick look at what happened to the balance sheet in the income statement balance sheet accounts receivable should have increased so if i go into that receivable just a verification of it did that indeed happen did that happen yes it did ten four roger that ten four roger out there it is and then if i go back up top the other side should be on the p to the l the profit and the loss the income statement tab to the right tab to the right update it skip to the left tab to the right there's the sales let's just verification on that one can i get a check can i get a check on that one do you read do you read the 1000 there it is yes i do roger that ten four roger out back to the why why i'm not in an airplane what are you talking about with this i'm going to right click again just to check the verification report duplicating it and we can double check that accounts receivable which is our focus at this point with another report going to the accounting drop down reports and this time we're going to go on down to the payables and receivables and well let's go to the aged receivable detail report this time aged receivable detail report this is going to give us support for that receivable account so there it is the 1000 right there if we look at all the detail the total down here for everybody that owes us money 10172 63 should match what's on the balance sheet 10172 63 however when we're working in practice now we're trying to collect on this money so now that's where we are in our story so we're going to go to the first tab now when we're trying to collect we're probably going to go to the business drop down and sort our invoices as we saw before we but we've got all the invoices if we have drafts they'll be here the drafts are not included in accounts receivable they have not yet been recorded awaiting approval once again they have not finalized they're not actually awaiting to be paid they're going through the approval process no financial transaction effect up top the ones awaiting payment those are the ones that actually are included in the receivable we would then expect to be getting payment in some way shape or form on them as we'll record with this item so then once we have it it'll be of course going into paid and so on now we also might check those invoices by going to the contact drop down and customers contacts and customers and sort through it this way which you'll see the drop downs up top and tabs if i scroll in just a hair more it's a drop down this way we can go into this particular customer and then we can find the invoices thusly so we can if they're questioning a particular customer is questioning us or we got a payment from a particular customer then we might go into it in this way right otherwise we might go into it in the other format and just look through the you were sorting out who owes this money to try to collect on it so let's say we got a thousand dollars from this customer then we might go into here we could say i can i can go into the invoice here i could go into the bottom here and say we've got a receive of a payment on it or i can go up top i can go to the invoices and i can i can select the awaiting payment invoices and then we could select this item and say we've got a deposit here now if i go into this item note and say we've got a payment on it the next question is i can go down here and say okay i'm outpaid let's say we got paid in full the thousand dollars so i can put the date of the payment let's say it was 1203 22 or let's just 1203 let me report in the future let's see if it allows me to say it happened in the future and then we're going to say it was paid to now this was where it gets a little tricky because we could put it directly to the checking account but note it if you have multiple people paying you like cash transactions or possibly credit card transactions you got to be careful in terms of your bank bank reconciliation process which you might be doing with the bank feeds or you might be doing with uh with a bank reconciliation just a standard bank reconciliation so just remember if i go back to my flow chart here that we're going to say we invoiced somebody and now we're going to be receiving the payment now if i invoice something someone and they just paid us with an electronic transfer or a check then typically i can just put this directly into the checking account at this point in time when i receive it and that will work just fine but what if they use like a credit card or they're paying through a credit card or like some other intermediary payment platform before it gets to our checking account or it's going uh they're paying us in cash in that case and the cash is the easiest to visualize if i get multiple people paying me cash then if i deposit it into the checking account at this point in time with multiple different cash payments let's say we got like five payments of five dollars and i put five dollar payments five times into my checking account in my books but then i deposit it into the bank account as whatever twenty five dollars lump sum it's going to be difficult for me to reconcile what we put on our side into the books to the bank account i'm going to have to do some adding the bank feeds aren't going to match as easily it's going to be a pain we want to make that reconciliation process as automatic and easy as possible and therefore you might want to put it into a clearing account and then and then when you make the deposit you group it into the format that's going to be showing on the bank side so you can match the bank feed or match during the bank reconciliation so that'll happen possibly if you collect cash or possibly if you have credit cards because the credit cards might group multiple sales transactions into one grouping right and if you're at a cash register we'll see the same kind of issue you might be collecting cash sales if you put them all directly into the checking account and then you go to the bank at the end of the day and deposit them in one lump sum you can have an issue checking your data to the bank so you want to make that as easy as possible so just to deal with that added wrinkle which i'm going to try to deal with a more complex scenario if you do not have that more complex scenario you could just put it into the checking account but i'm going to say let's try to set up another account which will in essence be a clearing account so to do that i'm going to go to the drop down up top and say this is going to be accounting let's go to our chart of accounts now i'm going to try to make it like a bank type of account a checking account notice that it doesn't allow us the system doesn't allow us to just like add an account and select like bank account we have to use the current asset but i want to make it a bank account because we still kind of have cash so it'll be up in the cash area so i'm going to make a bank account which usually it tries to connect to a bank feed but i don't want to actually connect it to a bank feed so let's try it we're going to say add a bank account it's going to try to act like we want a bank feed i'm going to select a bank just to make it happy so it'll let me set up an account but i'm going to say skip the bank feed i'm not doing the bank feed and i'm saying don't connect to my bank i don't want a bank feed but and then i'm going to put the account name it's going to be i'm going to call it undeposited funds account and the type type i'm just going to say other account number five five five i'm just making one up and then continue because i don't really have a bank account i still wouldn't have a bank account in practice it's just a clearing account and i'm trying to set up so now if i go into the accounting drop down and i go into my chart of accounts now we've got this undeposited funds a clearing account not a temporary account temporary accounts are income statement accounts mainly that roll into the equity this is a clearing account that serves a specific purpose will go up when we have cash on hand so that we can then group that money or credit cards that have been sales that we're going to group into a certain format the same format that's going to show up on the checking account when we make the deposit there so that we can match our data in our system to the checking account using the bank feeds or the reconciliation process as easy as possible okay so to do that then let's go back in to the business drop down let's go into the invoices and let's say i'm going to receive on this invoice i'm going to actually make two invoices so we can see it but let's do this one first let's say this is on 1203 22 does it let me do that yet 1202 1203 22 paid to now i've got the undeposited fund that's what i want i won't put any reference number and i'll add it boom so then if i go up top i can check it out and say let's update so now undeposited funds went up by the 1000 clicking on it to look at the detail and we see the information and it's a receive payment type of form if i drill down on that takes us back to the form if i need to edit it i can hit the drop down and i can i can remove it if i had to so i'm going to then go back and go back again and the other side is in the accounts receivable the a to the r which is up top to right there boom accounts receivable and we'll scroll down to the end so there it is this is what we typically expect to happen we make an invoice then we receive a payment on it it goes up it goes down note accounts receivable like all other accounts other than cash doesn't have the variety of transaction type sources for example because cash is the lifeblood of the company and therefore involved in every cycle no other account is in the same way if i go into the last tab or the second to last tab this is which one is this this is the ar so if i update the ar then i can see this item for here for the a a a hold on a sec i gotta change the date custom date and i put it out to the 31st okay so now the a a a is gone because the receivable is gone but the point is that this ties out still nine one seven two six five and if i go to the first tab we have then nine one seven two six five if i then go to my first tab over here and i went to the business drop down and invoices now it's been moved out of a waiting payment to a waiting payment here to paid so that looks good and if i look at my contacts drop down and i say okay let's look at my customers and i go into a a a i could see that activity here so if there's a question i could say okay invoice paid and so on okay so then let's do one more i'm going to make another invoice and just do the process again and let's say this is for bbb just to be very creative here man you're creative with your i know i'm i have a gift of naming stuff so this is going to be let's say it's item two again but let's change the price let's say there's two of them two of them so this is going to record the sales increasing the accounts receivable the other side going to revenue i'll just go straight to the approval and so there is that and then i'm going to go back into the business drop down and go into the invoices and then i'm going to imagine we got a payment on this one so a waiting payment there it is let's imagine we got the payment and that was the 2000 paid also on let's say december third and i'm going to put that into undeposited funds add so there we have it now it's been paid now the point i just want to point out here is if i go over here and say update now i've got 3000 in undeposited funds let's imagine we got cash that would be unusual but or a credit card in either way that that full 3000 is now going to be deposited into the checking account which is good which is actually down here because it's overdrawn so it's a liability because it's been we owe the bank money it's overdrawn but if i deposit all that in the checking account as one lump sum of 3000 either a cash deposit or the credit card or whatever platform that's helping us group our sales deposits as one lump sum i want to make sure to put it into the checking account as one lump sum if i don't do that if i put it in there as two separate items then it's going to be hard to match to the bank either matching it to the bank feeds which helps us to reconcile or in the reconciliation process that's why you might want to use this clearing account if you're just getting paid electronic transfers and they're going right to your checking account then you don't need that middle step possibly and you could just put it right to the checking account so just be aware of that credit cards mess that up cash transactions often mess that up but if you don't have if you're not dealing with those then you might be able to go right to the checking account just be aware of that issue because you want to make the bank reconciliation a vital thing for every company large and small easy so we'll talk more about that next time