 In this presentation, we're going to record an advanced customer payment or a prepayment or a deposit from a customer into our accounting system. In other words, we're going to get money from the customer before the goods or services are provided. Time to rise above the crowd with Sage50Cloud accounting. Here we are in our Get Great Guitars file. We're currently in the customer and sales section. If we go down to the flow chart in the customers and sales section, we note that the normal flow of things that will typically happen in most businesses are either we're going to do the work and then build the client, in which case we'll receive money in the future. That's going to be typical for like a law firm or a bookkeeping firm or a landscaping firm or something like that where we actually do the work, we count the hours, we see how long it's going to take and whatnot. Then we build the client and we expect payment after that invoice or bill has been created or something like a restaurant or in our case the guitar shop in the store where people come into the shop, they buy goods and services at that point in time and we get paid at the same point in time. Those are the typical two ways that we receive money or the flow of money within the service that's going to be coming into the business from customers. However, it is possible that we receive payment before we do the work. That's more unusual type of business. It's actually becoming more and more usual in terms of a standard type of business and it also could be just some transactions within a particular business. For example, whole types of businesses that run that way would be something like if you sell newspapers or the magazines, those used to be the typical kind of methods that would use that method where you sell the subscription, you get paid before you deliver one newspaper or magazine, then you deliver the newspaper or magazines and you earn the revenue at that point in time. That model is also a model that's very more in use now with the applications, computer applications in which case you may sell a year's worth of computer applications to people and they pay you before you actually provide the apps, things like a Netflix or something like that are getting paid before they provide the service. That's another area where it becomes something that's going to be there. A lot of concerts are concerts are also a big area where of course you're getting a lot of money before the actual concert is on and you have to deliver on the concert before you have actually earned the money. In a business such as ours, we might have certain cases where that's going to happen such as a security deposit on a certain type of purchase. For example, if someone, this is our scenario, we're going to imagine here someone comes into our shop, they want a particular guitar, we say great, we have this guitar here, they're saying no, I want it in green with a nice strap on it and this one's like blue and I don't want that color and we say okay, we're going to buy it from our vendor, we'll go to our vendor, we'll buy you the guitar and make it the right color with the little strap on it and everything but you have to give us a security deposit now to make sure that we buy that and it's going to be specific for you because we don't really sell that color and that strap doesn't, you know, like in our shop so that means then they want, we want to get a down payment so that's going to be the down payment. So in our case, we're going to get a down payment and then we make the purchase, the down payment securing that the sale will be completed because there's been a commitment for it, then once we get the inventory, we will complete the process. So you can see this is a bit backwards now. That means that we're going to have to enter the, we're going to get the payment first, then we're going to enter the invoice that will match out to the payments that we got later. That's backwards. Okay. See the arrows are going this way and we're like going the other way. That so, so that's what we're going to have to do now. We're getting this prepayment. So we're going to use the same form. We're going to use the receive payment form. We're going to say receive payments here. Going to make this large. We're going to say this is coming from Anderson. I'm going to make the ticket and I'll say this is coming from Anderson, one of our current customers. So, and we're going to say we trust you Anderson because you've done business here before, but we still would like a deposit. And I'm going to go for the check number and the receipts number. And we'll say this is on the, I would say the 17th. Go with the 17th this time. And so the way we do this is we're going to say, Hey, this is a prepayment. So I'm going to check this little prepayment box. That's the key. This is the key, the prepayment. Notice it jumped back over to the right. There was an invoice out. We're not tying out to that invoice. We're making a prepayment here because it was jumping over to the left. So I believe there was an invoice in any case, we're making a new prepayment. So then we're going to say this is a description payment. Payment prepayment on guitar, we might something like that. And the amount we're going to say is 250. And you'll see the rest of the fields are grayed out. We can't enter an item or anything because it's a prepayment. That's the point. This is going to be increasing the cash on hand. And then the other side, typically we'll go to a liability account undeposited type funds account because this is really a liability. We got money. We owe it back to the customer until the point that we actually complete the service at which point then we have earned that 250 as well as any other price on the guitar. So let's go ahead and save this and take a look at it. We're going to save this. Let's open up our financial statements. I'll open up the balance sheet this time. Going to the reports drop down, going on down to the financial statement. Then we want to go to the balance sheet, double clicking on that balance sheet to open it. We want to take the range. The current period looks good to me. So that's the one I'll keep in February. We want February. So we will open that up and so then we can see the 250 here. If I was to double click on that 250. So there we have, I mean, there is our information, the 250 in the cash on hand, the other side then going, you would think now, if you're in financial accounting, you're going to say, Hey, there should be a liability down here that says undeposited funds. Now, logistically, a lot of times that's kind of an issue. That's kind of a problem because if we, if we use a liability account down here, then it's more difficult for the computer system to tie that out to the sub ledgers that we want to be tracking by customer. In other words, the 250 needs to be tracked to an invoice. It needs to be tied to an invoice. And the account that ties to invoices is typically the accounts receivable account up top. So a lot of times, a lot of systems from a logistical standpoint will actually put the prepayment as basically a negative accounts receivable account. And that makes it so it's going to be easier for us to tie to the invoice in the future, as well as create sub ledgers that will be able to track that information using the same, the same system. So if we, in other words, once again, same, same concept, if we made a liability account, then we wouldn't be able to tie it as easily to the sub ledger to the customers. And that's really difficult for people to learn. If you go through it like financial accounts, you know that well, that's not proper. There should be a liability account. It shouldn't be a negative receivable account. And, and it's not something you kind of often pick up in financial accounting because they don't really put that part in place. But a lot of systems will actually do that. And it works well to have the negative receivable as long as you recognize what is happening. That's what's happening here. If I go into the accounts receivable, we're going to say now we have this, this negative amount. So in other words, we have a credit here. The credit usually is going to be tied out to a debit that happened in the past, right? Accounts receivable goes up and then it goes back down. This is resulting in a negative receivable. It's resulting in a credit that's not tied out to any, any increase in the receivable that shouldn't happen. Theoretically, it should go into a liability account, but it works well here because that allows us to tie the invoice to it later. Well, now it's not correct in terms of financial reporting here because if I look at this, I'm going to say, well, you know, this accounts receivable is wrong. It should be higher and there should be a liability account, but just remember, it's just like any other kind of adjusting type of entry at the end of the month, you can do an adjusting entry and adjust things from a logistical standpoint that works well logistically to what is correct on an accrual basis as of that point in time. It's just like any other adjusting entry that you put in place, right? We don't worry about depreciation every day that should be recording. We record it at the end of the month because at the end of the month, because that's going to make it right periodically. And so logistically, that makes sense for us to do. Otherwise, it would be too tedious for us to be recording depreciation every second that passes as something gets depreciated, right? It's a similar kind of method here. It's logistically convenient for us to track this way. And then we can make an adjusting entry at the end of the time period to take it out of the receivable and put it into the liability account periodically when it's necessary for financial reporting purposes. So that's going to be that. If I take a look at another report just to just to consider this more fully, if we go to the reports dropdown and we look at the receivables report, we want to look at the customer ledger. The customer ledger is going to show the customer with detailed transaction information. So if we double click on that item, then you'll see Anderson here up top and notice I'm in on February. Now, Anderson already had an invoice outstanding. So Anderson still owes us money. In other words, the receivable isn't negative, but this 250 doesn't apply to any invoice, right? So that this is a credit that doesn't apply anywhere, anywhere out. And that could result in negative receivable accounts, meaning it would look like Anderson owes. It looks like we owe Anderson money and we do. We owe Anderson money or we owe them the guitar. So this amount is actually wrong until we create the invoice at some future point in time. So if we happen to hit the cutoff date at the end of the month and this had not yet cleared yet, we saw that timing difference. That's when we would create the adjusting entry that would create the liability account and remove the 250 from the accounts receivable, increasing the accounts receivable. So that's going to be it for now. Let's get out of here.