 zero accounting software 2023 advanced customer payment or unearned revenue get ready to be an accountant hero with zero 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 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 here we are in our custom zero homepage going into the company file we set up in a prior presentation that being get great guitars duplicating some tabs to put reports in like we do every time right click on the tab up top so we can duplicate it then we're gonna right click on the tab up top and duplicate it again back to the tab to the middle accounting drop down let's open up the balance sheet we're gonna tab to the right accounting drop down instead of the income statement we're gonna open up that comparative income statement we set up in a prior presentation it's showing both January and February of the current year we're currently working on the second month of February let's go back to the balance sheet and then drop down on the date range customizing it to 2023 the end of it and will update that report as well okay so now we're gonna imagine we have an advanced payment type of situation and so to analyze this let's take a look at the flow chart so I'm gonna go to a flow chart which is a screenshot of a QuickBooks desktop homepage but we're just using it to look at the flow of note forms in a normal kind of accounting process we're looking at the revenue cycle now remember the revenue cycle will be dependent on the type of industry we are in we can't just pick what we're gonna do whatever our business is will dictate how we're gonna have to deal with how we're gonna be collecting our revenue at the end of the cycle however no matter what cycle we use we expect to have revenue being increased for the sale of goods and services or cash to be increased because of the sales of goods and services so the easiest system we can think of would be one where we have gig work we get paid by YouTube we could just wait till it deposits into our banking system possibly using bank feeds to record revenue at that time but if we make sales at a cash register restaurant food truck to put store or something like that then we're gonna have this added step even though we're on a cash-based system we're gonna collect cash at the same point in time we do the work or provide the goods and services but we're gonna have to accumulate that money and put it into our account for cash in the same format as it will be showing up on the bank statement and that's gonna be important for the bank reconciliations if however we're in an industry like accounting firms law firms landscapers where we have to do the work first and invoice the client then we're gonna have to track the accounts receivable receive the payment and make the deposit that's most of the businesses however we can also imagine a situation where we get the money first now there's gonna be some industries where that's just like the norm for example the classic example is like a newspaper or magazine distributors because what normally you have to do on a revenue recognition principle at least on a cruel and a cruel concept would be that you don't recognize revenue until you earn it not when you get the cash and with magazine sales and stuff you might get a year's worth of a subscription first you got paid before you did the work that means that you owe the customer either the money back or the work hopefully the work in the future so you don't have to give the money back so what happened is you basically got the receive payment before you invoice them and you you know right because you've got the receive payment before you actually did the work right and so that's gonna be kind of backwards and that kind of throws a wrench into our revenue recognition system now we can also imagine that happening in other industries such as if we sell large things like a guitarers in our case we might want a down payment if someone wants a particular guitar someone comes into our shop they say hey look I want this guitar we say hey that's an expensive guitar we don't have it on hand but we will order it from the vendor for you however in order to show us that you are committed to completing the purchase we would like a down payment at this point in time therefore we collect the money before we give them the guitar similar kind of thing happens in rental type of situations where you might say I would like the last month's rent upfront where you and so so now you've got this pre-payment for the rental of the property that you have not yet provided in that sense as well and also note that this is becoming more common in online businesses the situation where you get paid first in a similar way as with the newspaper situation when you're talking about online application type of systems so if you're gonna provide a subscription to your blog or something and they're paying you for a year's worth of subscription well that's similar to the magazine situation where you got money first before having before you actually did the work so on an accrual system you would think that you would have to deal with this under and revenue now in practice for taxes in the United States small businesses might just be doing this for taxes and you might be okay in that case collecting the money and recording income when you collect the money because the taxes the tax man would be kind of happy with that right because that means that you're actually paying them earlier when you collected when you collected the money but for generally accounting purposes generally accepted accounting principles accrual accounting then you should be tracking the under and revenue kind of system and when you have this so we're gonna be looking at it with this deposit situation so they're all kind of related we're getting money first so we owe the money back to the client or we owe them the goods or services in our case we're gonna be selling guitars we're gonna get paid before we actually provide the guitar with this down payment okay now note that some accounting software such as for example QuickBooks doesn't have the greatest tool really to record it properly because you're supposed to record a liability of under and revenue and the problem is that if I if I record it to under and revenue and not accounts receivable I don't have that nice tracking of the sub ledger as I do when I record a receivable so when you record something like this in other accounting software often times like a QuickBooks for example people will record a negative accounts receivable because that will allow them to later create an invoice and apply the over payment to the invoice but zero has a pretty nice feature which allows us to properly record it as a liability and still have the capability of tracking that information in the customer section and applying it out to a future invoice so that's like an advantage of zero that I think is is interesting it's a pretty neat feature that is quite worth pointing out so if I go to the so if I go to the first so if you're following along and like an Excel practice problem with this and doing a comparative problem in Excel we might make a negative receivable and then we're gonna adjust for it here we're gonna do what a zero allows us to do make the liability account which properly records it at this point in time alright so how to do this we're gonna hit the we're gonna hit the plus button and we're gonna say that we want to have a receive money so we're gonna get paid by the customer and if you were doing like a like a sale of a guitar or something you might make it like an estimate form or something and and then say well we're gonna have this amount of it as the down payment but I'm just gonna say it's gonna go into the checking account so we're imagining someone has a guitar and we're gonna say we want some money down in order for for us to order the guitar and get the right color you want or whatever so Sam the guitar man guitar man is the customer so we already have them set up and it's gonna be for 225 we have him set up 225 I'm gonna say 225 alright and then the item that we're gonna be having down here we're not gonna have an item I'm just gonna put a description down payment it's gonna be a down payment type of situation for 250 and by the way I'm the important thing here it's it's not a direct pay it's gonna be a prepayment prepayment that's the thing that's gonna give us this nice link so make sure to change that it changes this to like a yellow type of field and then I'm looking for a liability account so a liability account I don't think they have one for us yet so payroll sales loan payable suspense so I'm gonna call it a liability account that I will make up that'll be like unearned revenue or something like that or you could call it customer deposit I'm gonna make a new account hold on let me see if I can find the proper account number I need to find a good account number for it so let's say it's gonna be payroll federal liability state let's just make it 2250 2250 okay let's do it 2250 2250 is open and available so then we're gonna say the account is gonna be a liability type of account current liability and it's gonna be unearned revenue because we haven't yet earned it therefore it's a liability and not on the income statement as a revenue account you could call it customer deposit if you would like to too which again isn't an asset of the deposit it's a liability because they've given you a down payment or deposit on a purchase they're gonna make in the future alright so there it is so what's this going to do well it's a receive money form so it's gonna be increasing the checking account and then the other side we assigned it to go to the unearned revenue so that's all great but it also is going to be increasing or it's also going to be tied to the client or customer of Sam the guitar man so that when we create a future invoice we'll be able to tie this payment to it and oftentimes if you hear this in terms of normal parlance like when people are talking to each other they might call it like a credit this is a customer credit the customer has a credit now why does why do we use that term notice it derives still from just debits and credits just from an account and this is kind of my kind of my something that kind of gets to me sometime because the changing of these words debits and credits have gotten kind of messed up in the terminology or they're just used in different ways but really debits and credits just mean the left side and right side of the ledger and so when you say that someone is crediting your account this is our customer and we are crediting their account which either means we're lowering the balance to it because it's an asset to us so if so if we credit it we're gonna put something on the right side of the ledger a credit which is gonna lower the balance or if they don't owe us any money it's gonna be a credit that we can apply to future purchases so credits are usually a good thing so we hear credits being said as a good thing right the client with the clients are happy that we're gonna credit their account because to us it's a receivable and a credit means we're decreasing the receivable or okay so in any case let's save it and go back on over and see if it okay there is it's green we're good to go update and let's see what happened and we're gonna go into the checking account and scroll on down scroll on down there's the 250 right there movie B to the end the other side did not go to revenue but rather went to a liability account because it's unearned so he's gonna scroll down unearned revenue of the 250 now when I look at a sub ledger for the accounts receivable it's not gonna show it the sub ledger still gonna tie out to this on nineteen eight eleven fifty which is fine and we have because the other amount is is a liability however I want to be able to logistically be able to tie this 250 out to the invoice that we're later gonna create so I'd like to when we get the guitar be able to turn around and make that invoice as easily as possible so when I go back on to to our tracking this internally and say okay let's go to the to the business drop-down and invoices and we'll go into our invoices and you can see if I I could see it right there if I go into a waiting payment you've got this PP thing which is great because that should be an indication that that's a prepayment a prepaid amount it's a credit right as they call it right it's a credit that has not been applied it's an amount on the right side of the ledger a credit to a particular client that has not been applied to an invoice and therefore if they purchased something then we could lower the amount you know by that that 250 if we also go to the contact information and I look at all let's just go to all customers and we're looking for Sam the guitar man so Sam the guitar man when when they come in we've got this receive money of the 250 here it is and we see it says prepayment right there so it says prepayment and so now we can the next step would be to create the invoice from that prepayment so really pretty neat that zero does that they I think zero actually handles this better than the you know some chief rivals such as QuickBooks Online at this time so now I'm gonna do it again so I'm gonna go back to the first tab and let's try it again so I'm gonna say that we have another one plus button we're gonna say we're gonna say this is gonna be a receive money form and note again if you're following along with like an Excel problem we may have put it into like a clearing account so that we can then deposit it into the checking account as one lump sum but I'm gonna put it here directly into the checking account so we're gonna have three items in the checking account which might throw us off a little bit on our bank reconciliation but we'll see that when we get there so I'm gonna say continue and we're gonna say this is gonna be for Mr. Anderson Anderson guitars and this is gonna be on let's say Feb 25 Feb 25 and so again I'm just gonna say this is gonna be a deposit deposit something like that and this is gonna be 300 oh by the way I have to hit the drop down making sure that I make this a prepayment that's the key point here and then this is gonna be unearned revenue unearned revenue so same thing what's this going to do it's going to it's a receive money so it's gonna go into the checking account for the 300 the other side is gonna go into unearned revenue as we assigned here and it's gonna give us that's nice link tracking by the customer so that when we actually invoice Anderson for the guitar we can pull in that 300 of the customer credit or prepayment at that time so let's save it there's that one alright let's do one more so I'm gonna hit the drop down again and let's say we're gonna say a receive money form and similar kind of process we got these people now that the words out that we're gonna call it a down payment they can do the down payment thing we've got these customers flowing in like crazy hopefully we can finish the deal so this is Eric music Eric music comes in and they let's make this 225 to as well February 25 and we're gonna say this is a deposit deposit customer deposit that is so what we're talking about there one and let's say $200 deposit this time going into unearned revenue unearned revenue and I gotta make sure that it's not a direct pay I want a prepayment so it gives that credit to the customer account so what's this gonna do it's gonna increase the checking account the other side's gonna be going into the unearned revenue which I just thought I did that I thought I did that already unearned revenue and but it's also gonna give us that prepayment now again if you're following along with Excel or comparing this to like another accounting software then we may have put it directly into the clearing account and in there it would record on a negative receivable possibly but here it's gonna properly record the liability because zero has that capability which is super cool so we'll say okay let's go to the balance sheet and update it so so if you're following along with an Excel problem we might have put it into a clearing account here we put it just directly into the checking account so we got those three items deposits into the checking account the other side is going into the unearned revenue so if I go into the unearned revenue we have those three amounts that are recorded there for three different customers scrolling back up then the accounts receivable is properly recorded now so we don't have like any negative receivables using this format here which is great and we could still track it by and be able to apply our prepayments our customer credits by going to the first tab and if I go to the accounting drop down and we look at our invoices not the accounting drop down the business and the invoices then we can see we have these three right there that are waiting to be applied out when we make a future payment so once these customers come in we could say I could see you got your deposit there so we'll go ahead and apply that to an invoice and complete the process okay so we're gonna continue on with the invoicing and whatnot in future presentation so now let's open up our trustee trial balance and just see where we stand so we're gonna hit the let's go to over here accounting reports and open up the trial balance to check out the numbers trial balance and we will change the range up top change in the date range custom date 2023 the end of end of it and update to make it up to date so then we're gonna scroll down and this is where we stand if your numbers tie up to these numbers great if not then try changing the date range if your numbers tied out last time and they're off this time the things that we changed were of course the checking account and the unearned revenue so you would think one of those two would be the things that were off if you were on last time and so if it's a date range thing change the range drill down on the number that's changed and then drill down to the source document possibly a receive money form and then correct it if that's the issue