 QuickBooks desktop 2024 negative accounts receivable subscription unearned revenue monthly invoicing and revenue recognition. Get ready and some coffee because we're locking into some non-stop QuickBooks desktop 2024. 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 but that's okay whatever because our merchandise is is better than their stupid stuff anyways like our crunchy numbers is my cardio product line now i'm not saying that subscribing to this channel crunchy numbers with us will make you thin fit and healthy or anything however it does seem like it works 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 accounting instruction dot com or accounting instruction dot thinkific dot com here we are in our QuickBooks desktop sample company file we set up in a prior presentation looking at the enterprise version of the QuickBooks desktop software so we can practice using the new unearned revenue feature within it in the view drop down we have the hide icon bar selected open windows list selected open windows on the left hand side company drop down we have the home page open let's go to the reports opening our major financial statement reports as we do every time reports and company and financial starting off with the balance sheet standard customize the report change the range 010127 tap 12 3127 january to december 2027 fonts and numbers i'm going to bring that font on up to 14 like we do every time okay yes please and okay dropping down the reports again company and financial this time the p the l the profit the loss the income statement changing the range but i only want three months out this time so from 010127 tap 12 not 12 033127 three months out that's what we agreed upon so then we're going to say that this is total only no we want month by month breaking it out month by month for scenario by scenario here customize in the report so we can see it better in the uh screen recordings fonts and numbers changing the font on up to 14 again okay yes okay there's the setup process we do every time let's go back to the home page and we're comparing scenarios here on how we can deal with this unearned revenue situation so we started with a normal scenario we had an estimate we make the estimate into a sales order if you don't have the enterprise version you might not have a sales order but it's kind of just like locking in the estimate and then in a normal process we might simply go to the invoice at that point we possibly also might need to buy inventory in some cases in which case we can buy inventory but on the sales side the next step would be the invoice we receive the payment then we make a deposit but what if we want to get the deposit first two scenarios will run in first scenario we have a big sale of something and we get a deposit like on our surfboard the psychedelic surfboard that we sold and we wanted to get a down payment because we had to order the custom surfboard and we want to make sure that someone is committed to it so that we can make the order in that case we made an estimate we made a sales order and then we jumped over to the received payment and there's two ways we can think about receiving that received payment the old way using a negative AR which still has its pros and cons and or the new way which would be linking it to the unearned revenue which is the new thing which we'll talk about later we've practiced the old way the negative AR then we entered the invoice which maps out the AR as well bringing us back into our normal spot once we get the psychedelic surfboard and then we had to receive payment and and we're good to go and we end it off or we can have a subscription model which is the model we're focused on this time in which case we might have the the same estimate we might make the sales order but then we're going to go to the received payment here not have to deal with inventory possibly but receive like a year's worth of money upfront and that's just our normal model like a newspaper model or a magazine model or an online application model some kind of subscription service type of model so the way we should recognize the revenue then is by not recording the invoice when we get the money because we haven't earned it at that point in time we should put it into unearned revenue or liability but under the old method we could still use the negative receivable in that case if we wanted to that's what we're practicing this time and then we'll compare it to the new method so this time we have this negative receivable that we put in place so we're imagining we sell some kind of subscription a newspaper or something like that last time we did the estimate we did the sales order and then we received the payment in our case we're saying five months of payment upfront and then now we're going to have to invoice the client and that's what we're going to be doing this time okay so let's recap the process so if I go into the customers drop down customers and the customer center then on the left hand side we named our customer the third because this is the third scenario with that we ran we first made the estimate here's the estimate opening that up and notice to what we did here which is different than the deposit scenario we actually made a different item for each line item of a monthly payment which might make it a little bit easier when we're trying to tie that out and recognize the revenue because we broke it out into revenue recognition chunks of monthly chunks that we can pull over to the invoices so I'm going to close this back out we converted that then nothing was recorded from that that was an internal document that we're tracking then we had the sales order that we created from the estimate looks very much the same here that we have on the sales order pulling it out also internal document and then we've created the payment which is the prepayment and we note that when we got the payment usually it's linked to an invoice but it's not in this case resulting in this negative accounts receivable for this customer of the 188 56 if I look at that from a journal entry standpoint the journal entries over here then we have the estimate the sales order the sales receipt this is the only one that had an actual transaction if that was the only thing in our books it would increase cash and the other side's not going to revenue and not on the income statement because we have not yet earned it it should be going to an to a liability account but it's not we're doing the old method that it's in the accounts receivable as a negative receivable which will not necessarily convert your whole receivable to negative as it's doing here because you'll have other receivables in there possibly but that for that one client it's basically a negative receivable and technically that would be wrong for reporting purposes but it's pretty easy to track from an internal bookkeeping purpose because now we only have one sub ledger tying out to this accounts receivable that's like the pros and cons of it if I just to check that out again if I close this out and I go to my balance sheet over here then we can go to the AR so here's the AR if I look at the sub report of that reports drop down and we go down to the customers and receivables and take a look at the AR balance detailed report let's say so there's our AR see how it's in there as a negative for that particular client let's customize it and make it larger fonts and numbers so it's a little so it's got 12 this time let's not go crazy with the 14 just bring it up to 12 so there's the negative AR now now note that my total AR is not negative right so if I go down here it's it's still 92 8 19 on the positive because I have other AR in there that's positive but for but it should be then if I go back to my balance sheet it's and it ties in over here that's the point the sub ledger ties in that's the good thing the bad thing is the AR is is understated and we should be breaking it out for a liability but it's a timing difference and so that's the that's the pros and cons okay so now if I go back to the homepage what's the next step well in this case we we did the estimate we did the sales order and then we did the received payment now when unlike the deposit scenario with the psychedelic surfboard we don't need to collect anymore we've collected all that we're going to collect until the next round of of the next year or in our case five months of payment so what we're going to do is now just periodically monthly as we do the work we're going to invoice and the invoices are going to be then lowering the accounts receivable which has a negative balance in it because we'll apply the credits out to it and the other side's going to go to revenue recording revenue as we earn it which so that's going to be what we'll do here so let's do that we'll go to the customer centers probably probably where we would go that not that one customer center and then I'm going to create the invoices from the sales order so I'm going to open the sales order and then I'm going to piece out these one at a time these monthly chunks one at a time so I'm going to say okay let's go up top and say we're going to create an invoice from it and then it says create invoice for all the sales orders I'm going to say create invoice for selected items we only want the selected items because I'm going to be pulling in one of these items at a time so we'll say okay so and if I'm on the first month I'm going to unselect all these and just select the first month and then you see how see how that works that's why we created these items imagining that this subscription was for five months in our case so that we can recognize revenue one month at a time so I'm going to go okay let's do it so now we have our invoice so our invoice tab and through it tab and through it we got oh three let's say oh seven two seven tab tab tab tab it pulled in just that first item of the subscription model for for month number one that's what that one stands for we probably could have named it a little bit better but it's for $35 because we said the total was going to add up to whatever the total that we thought it should add up to so it came out to 35 I think it was what did we do let's let's what is this whatever stuff you're the one doing the problem can't you tell us it was 175 divided by five months $35 okay and then and then we had the sales tax not you might not have a sales tax if it's a service item depending on where you're located but that complicates it a little bit so we'll add the sales tax just to make it a little bit more complex in case that's the thing that's going to be 271 and that's going to give us the 37 71 now no this probably wouldn't happen till the month after that we issued it so it probably should better be in like 040127 let's say and then so then there's the 37 71 if I so what's that good what's that going to do it's an invoice invoice is going to increase accounts receivable which for this customer has a negative balance right so we'll decrease the negative balance and accounts receivable for that customer in the sub ledger and then the other side is going to be going to revenue and we don't have to deal with inventory or cost of goods sold in this case because we're not tracking that in here so if we did that over here on just journal entries we would say okay AR is going up but then we have to deal with the sales tax because we had a sales tax thing happening and then the sales and then we have sales or income so the amount is going to be the amount is going to be equal to the sales is going to be going to say negative 175 divided by five or 35 credit and then the sales wait that was the sales let's put that down here and then the sales tax I'd rather on reverse these two sorry about this I apologize I'm going to reverse those two I think it looks better that way I think it looks better that way okay and then the sales tax we said was 0.0 775 so I'm going to say this is going to be equal to this times 0.0 775 and then that means the receivable oh now now this is all in the wrong thing this should be over here this is just you're just messing do it over no I'm not doing it over invoice number one let's say month one and then this is going to be negative sum of these two okay it makes sense we know what's happening so now this negative receivable is going to go down so if I double click on this and say plus negative receivable goes down and so then so now I have five months left of the receivable right and then or four months left because there was five total and then we have the income is going up by 35 and then we have the sales tax payable is going up so now we're recognizing the revenue of the 35 that's an increase that's income that's why it's green of the revenue as we earn it let's do that over here and say record it and check it out on the side save it and close it and see if that is indeed what happens so we're going to go to the balance sheet and we'll go into the A to the R and we're going to say that this happened on the A to the R doned a I think I had the date I should have put the date as a four and I put it as a one so I'm going to double click on it let's go back into it you really just a mess today you just is just everybody's going to be confused get ready to hear about this in the comments so I'm going to save that okay so there it is there so so now so there's that I'm going to close that back out and then the other side is going to the revenue on the profit and loss and so I'm going to bring this out to 04.3027 let's say so now we have the income that was recognized over here no income recognized in March because we're collecting it on a month by month basis and we'll say that we collected it or we earned it in April I probably should have said I earned it like at the end of March or part of March and part of April if it was over let's actually bring it back to March here I'm going to go back into it are you kidding me are you kidding me right now no it's not that bad I'm going to go because then it gives me more room so we can see it and then I'm going to say save it there so then okay so now we recognize it in March and then the next one will recognize in April so we'll just get an idea of how this kind of how this works because okay so that's going to be what we do and then if I go to the balance sheet and we go to the cusp if I go to the customer balance detail report and scroll up to the top we've got the payment and notice how these fit together nicely that's what's good about this report or this method even though I still have a negative receivable which is technically wrong it's really easy to see what is happening on one sub ledger that's the benefit of it it's like oh okay well there's the payment and there's the invoice that mapped out right to the payment and then in the customer center you could see it pretty easily over here because here's the invoice and and we see the payment and it's netting out and here's the balance now if I go back into the invoice it hasn't been applied out I should have applied it out so I could apply the credits now I think there's if you have the certain settings on it'll do that automatically it like when you say close it'll say hey there's a credit that you can assign out here but that's not always good to have on all the time because you don't always want to apply that out so I can manually apply it so let me show you what I mean this amount right here for the the payment if I go into that I could apply it out to this invoice this way and apply it apply it out that way this invoice wasn't there when we made the payment because we made the payment before the invoice but it's probably easier to go back into this invoice and then say we want to apply the credit so I'm going to apply the credit now it's applying out that credit amount of 188.56 only 37.71 of it leaving us the balance of 150.85 done and this isn't going to record anything new but it gives us the information at the bottom here so it still records the same thing so I don't have to like go back and look at the financials again it's still recording a accounts receivable increase 37.71 the the sales increase 35 and the sales tax increase of 271 even though we're not actually charging anyone anything this is just an informational thing at the bottom and this is of course an invoice that we could give to somebody if we wanted to show the the the the subscription as it was passing and and as it you know was being applied out as we did the work as the as the months passed okay so then let's do it again so so in this process unlike the the psychedelic surfboard deposit we're going to just keep doing the invoicing this is like the classic book problem scenario for an accounting problem where you're doing like a subscription model so now I'm just going to keep on every month doing the same thing until the subscription is up right so we would go so I could go back into my customer balance detail will imagine no customer center will imagine another month has passed and so I'm going to say okay that's what I'll say that's what I'll say okay and then let's go in here and I'm going to make another invoice from this but I'm going to make it from just the invoice for selected items okay and so the first one's unchecked because I already did that one so now I'm just going to uncheck the rest of them I just want the second the next month and I'll say okay boom that's what I say okay I say okay a lot I say I'm going to say okay and then I do it because when I say I'm going to do something then I do it okay and I said I was going to say okay and so okay that's what I've done I keep my word okay so there we have it so then this is going to be doing the same thing the invoice is going to increase accounts receivable which has a negative balance in the sub ledger for this customer and it's going to do that for 37 71 including the sales tax the other side is going to go to revenue for 35 and then sales tax payable is going to go up if I see that with a journal entry this way it would be month invoice month number two let's see if I can do this better this time don't mess it up this time like you did last time confused everyone so that's why it gets do it a few times so that like since I can see it's going to be exactly the same right I messed people up last time but this time I'll do it right accounts receivable let's go up here double click on it go to the end of it plus and there's the 37 so AR is going down still negative but you can see what's happening here so it's still not exactly proper but easy to follow which is a good thing follow followability is something I look for in accounting systems and uh and stuff being able to like follow along and understand what in the world is happening around here let me get this straight let me get this straight I like to get things straight because I'm going to save and close I deal with a lot of handwritten records and they have crooked T accounts and crooked ledgers and so what I do is I put them into QuickBooks so I can get the record straight so resulting in records that are really just a pure delight to interact with why because I because I put the record straight well QuickBooks helped a little bit but I put the record straight so what was I doing here uh I'm going to now I've recorded that so let's go to the balance sheet and then let's go into the accounts receivable and so there's this one so there's a 37 you can see the pattern the other side's going into revenue so if I go into the revenue side of things so now see I'm recognizing it each month out on the revenue if I go into my customer balance detail report then you can see the invoice pattern so again it's not correct because it because it should be a liability but quite easy to follow you can see so then I can let's do one more uno vase moss one more time puff pour five or please and then we're going to say since you said the magic word we'll do it again invoice one more time create the invoice okay okay you didn't say the I said the magic word but I heard the magic word so that's good enough so there we have it and so this is going to increase the AR again let's do it for 0505 3127 and so increase AR by the by the 37 increase revenue by 35 and the liability by the two let's do it one more time well let's record it over here first on excel so I keep the pattern going over here I'm going to copy that paste it down here but it's a number three month a to the r let's just copy this down copy it down copy it down and then this is going to equal the 37 let's copy that down and so what happens now after the next month the AR would go down again if this was so this is like the only thing in there you can see right it's still wrong because it's negative AR instead of a positive liability under revenue but easy to follow easy to have the sub ledger ease of easiness is is a good thing don't let anyone convince you otherwise easiness it's supposed to be easy so stuff's if stuff's not easy something you're thinking about it wrong or someone's lying to you probably because they're making it complicated to try to sound smart or something so there we have that okay and then so if we so now we can see what's left in here we had three months pass and it was 35 a month times two right equals 35 times two so is that is that how how what yeah I didn't include the sales tax though so it was if I include the sales tax it's 188.56 divided by five and and now times two so there's 75 42 so that's what's left two months worth including the sales and again the sales tax are kind of throwing you know a little bit of wrench into the situation here but so so you might have to deal with the sales tax in different ways depending on where you're at but there it is the general concept is still clear see the government is one of those people that try to make that they make things complicated that's what I'm talking about it should be easy but no but no government comes in and taxes it's don't worry the tax is going to be simple you'll understand it how am I supposed to under it makes no sense you wrote a law a bill and then called it like some crazy name like an inflation reduction act that has nothing to do with like what you named the bill after and then it tells me to do all this stuff that I don't know how anyways you can see the pattern here and then if you go into the profit and loss we can see the pattern over here but something's wrong let's go into the customer center something oh I need to change the range you need to change the range going out to 05 3127 so there we have the pattern 35 being picked up per month the total net income thus far at 255 is that what we have over here no it is not but I'm just looking for these three months so I've got 35 plus 35 plus 35 105 so that's what we have over here 105 for this third one because the other two months were using the last one so we did scenario number one with with no the normal routine no prepayment scenario number two the psychedelic surfboard deposit scenario number three is the unearned revenue subscription model where we haven't yet collected all the revenue because we only went three months out instead instead of the last two of the five months but hopefully that gives you an idea of the normal kind of processes and how they might work under the negative AR system and then in future presentations we'll do the same latter two with the with the unearned revenue which will add another account over here on the balance sheet instead of having and we'll see some pros and cons because again it's great to have the unearned revenue properly recorded down here but it also means that we have two accounts that we have to deal with sub ledgers for our customers which makes it a little bit more difficult on the bookkeeping side of things but that those are the pros and cons