 QuickBooks Desktop 2023, Advanced Customer Payment or Unearned Revenue Method No. 2. Let's do it within 2-Hits 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 problem. We started up in a prior presentation going through the setup process we do every time. Maximize on the home page to the gray area view, drop down, hide icon bar, open windows list checked off, open windows open left side, reports drop down, company and financial P and L profit and loss range change 0101232, 123123 and customize the reports to the fonts and numbers to change the fonts and numbers to 14. Okay, yes please, okay. Then reports drop down again, company and financial balance sheet standard. Is it ranging 0101232 to 12, hold on a second, got ahead of myself, 0101232 to 123123 fonts and the numbers up to 14, okay, yes please, okay. That's the setup process we do every time. Now we want to think once again about an advanced type payment situation to see that. Let's go back to the home page. In prior presentations we looked at a scenario where for example we receive money before we do the work which is unnatural because most businesses have to do the work before they receive money before they get paid in which case they have to have an invoice or they receive payment at the same time such as a restaurant or something in which case you have a sales receipt but some industries like magazines possibly then any kind of app that's going to be on a subscription model for example or types of companies that are going to have a down payment on work they're going to do in the future possibly for custom jobs or order something like a guitar in our case might have a situation where we get the money first. Now last time we looked at a very useful scenario or a useful method to use from a bookkeeping standpoint it's probably the most natural method to use which would be just to enter the receive payment when you get the payment even though it's out of order and then apply the payment to the invoice. By doing that you're going to end up with a negative receivable when you have the receive payment which isn't exactly correct from a financial statements point of view but works quite well logistically because it makes it quite easy for us to then match out that credit to the invoice we make in the future because the accounts receivable account is the account that then has the sub accounts for the detail of the customer. So for example last time if I went to the customer center we imagined for Mr. Anderson that we had a pre payment which was recorded with a payment of $300 and then we invoiced for the full amount and applied the credit to the 300 and gives us this nice balance which is perfect from a reporting standpoint. However, from the point between when we got this advanced payment and when we made the invoice our reporting was a little off because we had a negative receivable instead of a positive liability. This time we'll look at a method that allows us to have a positive liability and unearned revenue account but it's not as quite as nice on the bookkeeping side so it's got some pros and cons. I quite like this method and again we can use adjusting entries at the end of the period to make the adjustments to make things as easy as possible like on the bookkeeper that way but there might be some situations and it'll kind of depend whether it's a one off situation or whether you're in the kind of business that has all of your sales as pre sales like unearned revenue or like a magazine company or an app store for example. So this time we're going to use the sales receipt so we're going to imagine same scenario someone comes in they say hey look I want this guitar but I can't pay you the whole thing now and we're like okay we can put a down payment on it and we will create a sales receipt instead of just the receipt payment. Also note that if someone had a scenario like that you might create instead of an invoice you might create like an estimate and you might then say okay look this is the guitar that you want like whatever an ELP and then you might use this to help you to determine how much of a down payment you want to create and that estimate could also give you some idea that they came in earlier and we can create the invoice from the estimate and then we can apply the credit to it so just to kind of keep that in mind but I'm not going to do an estimate here we're just going to do we're going to say okay we want a down payment then and I'm going to enter it with a create sales receipt instead of a receive payment this time we're going to imagine this is from string music so that's the customer it's going to go into undeposited funds we'll imagine it's going to be cash and this is going to be on the 27th we'll say of 2023 everything else looks good now what I'm going to do is set up a new item down here because I'm not actually selling the guitar what I want to do is set up an item that will apply this money to a liability account instead of an income account so it's a little bit of a twist with the item will set up so I'm going to call it a customer customer deposit this is what I'm going to call with the item because it's a you might call it you know a prepayment under revenue item I'm going to call it a customer deposit on our guitar so I'll say tab QuickBooks doesn't have it so I'm going to set it up I want to set it up I'm just going to make it a service item because I do not want to have the tax applied to it I'm going to make it customer deposit and I'll copy the name here I'll put it in the description and the rate I'll keep the rate as is because I'm I don't know what the rate will be it will be dependent upon what the customer does I want it to be non taxable so it's going to be non taxable and the account instead of going to an income account like sales I'm going to create a new account make it a liability account of unearned revenue so I hit the drop down I'm going to say this is going to be a liability of their current liability it's a liability because they're paying us and I owe them the money back or the guitar in the future so I owe them something in the future so I'm going to call it unearned revenue which hopefully I spelled right I think I don't know I think that's right so current liability unearned revenue that looks good okay okay and then I'm just going to for our practice problem purposes say $100 there it is so we've got no sales tax on it because we this is a prepayment $100 what's this going to do well it's a sales receipt it's going to put the money into undeposited funds the other side will be driven by the item the item usually driving to some sales account but this time we made it to go to a liability account that's the trick that's the trick that's the twist so I'm going to say save it and close it save it and close it and then I can go to my balance sheet and now it properly recorded the fact that we've got the cash going up double clicking the cash we've got the sales receipt here where did I actually went into unearned revenue what am I doing unearned revenue what are you doing goes into unearned revenue right there the $100 the other side goes into not a revenue account but now this liability account that we just made up here unearned revenue no impact on the income statement at this point there we have it that's great and then if I look at my sub ledger so this did it properly if I did the other method it would have made a negative receivable which isn't exactly right for reporting purposes so now let's go to the customer center looking at the bookkeeping side of things which I don't think is quite as clear as the other method so there's a pros and cons there's trade-offs between the two so if I'm in string music we've got these sales receipt that shows here and that's the advanced payment but the fact that it's recorded as a sales receipt which is usually the form to record something when we receive payment at the same point in time we do the work can be a little bit confusing to know that that is actually an advance that we have to take into consideration when making the invoice for this customer in the future as opposed to when we did the mr. Anderson the prior method we had the payment which was the $300 here which shows as a normal payment process which is usually done after an invoice but the fact it was done before the invoice allows us to easily link to the invoice that we create in the future so now let's let's go through the invoicing process so if I go to string music the next step would be able would be to make the invoice so now let's say that we're actually going to complete the sale at this point in time we've got the advance now we're going to actually sell the guitar so let's go to then the homepage to do that and let's go to the create invoice and this is going to be for string music tabbing through let's keep it at the 27 and there we go terms let's just say net 30 on the terms as has been our custom we're going to just pretend that we sold an EPSP here and one of those and $600 tax is applied notice the tax is going to be the 5% or $30 now if we have the other method we would be then applying the credit but we don't have a credit to apply in this method because we didn't want to have a negative receivable a credit kind of represents the fact that there's a negative receivable or something that's not applied out to an invoice a payment not applied out to an invoice so we can't use that same linkage but I know that we have the $100 advanced payment so I want to put it in there with the use of the item so I can use the same item we set up last time which is the customer customer deposit and but this time I'm going to put it in there as a negative and we know that that customer deposit we set it up last time to be going to unearned revenue so this will be decreasing the unearned revenue bringing it down to zero it's a non-taxable item therefore the $30 is still represented on down below note that the balance here now of the invoice is 530 kind of taking into consideration the customer deposit whereas in the prior method we saw that the payment would be applied down here at kind of like the bottom of the invoice so it's a little bit different and just the logistics of how it's going to be showing on the invoices so what's this going to do it's an invoice so accounts receivable is going to be going up by the 530 the other side is going to go to revenue revenue is going to be going up by this item which is driving to a revenue account of the $600 not taking into consideration the $30 tax this item however is not driving to a revenue account but as we saw when we set it up it's driving to unearned revenue it's going to bring unearned revenue back down to zero we also note that the sales tax is going to go up by the $30 we know that inventory is going to go down by this item not by the 600 but known by the system but by the item in the system the cost of goods sold is also going to go up by the same amount the net impact on the income statement will be the increase in the revenue from this item minus the cost of goods sold we also note that the sub ledger should be going up for the accounts receivable for the customer of string music by the 530 and then the inventory is going to go down driven by the EPSB for the one unit and the related cost to it let's save it and close it and so I'm going to say yes let's save that and let's go to the balance sheet check it out and see if that is indeed the case double clicking on the AR here's the invoice for the 530 so there's the invoice for the 530 I close that out I can go back let's close this back out let's go to the profit and loss on the P and L double clicking the sales is on the books for the 600 that's the 600 here by this item closing that back out we can go back to the balance sheet we also know that the unearned revenue which is down here is now gone because it's a zero balance let's add it back in by customizing advanced let's go to active items okay okay so I can drill down on it we've got unearned revenue so double clicking on it so it went up by the $100 and then when we invoice it went back down driven by that item closing it out closing it out we see that the sales tax is impacted by that $30 which is going to two different locations the state and the local closing it out and then we also know that the inventory is going down double clicking it by the 480 which is driven by this item and we know that the cost of goods sold if I go back to the P and L cost of goods sold is impacted here by that same 480 closing it out now if I go back to the balance sheet so everything works quite nicely from if you were looking at this from just a debits and credit standpoint as an account you say well that works you know quite a lot better but from a bookkeeping standpoint it's still not quite as clean it seems to me as the first method so if I go to the customer center for string music here I can see okay I've got my sales receipt for the $100 that I received the one the $100 on but note that the invoice here is actually reporting we're recording the invoice in the customer information net of the $100 as opposed to the other method which I think is a little bit more clean to see when you see in the customer detail when I go to Anderson guitars we have the invoice reported here at the full amount meaning we reported the income invoice at 1,365 and then we netted out the $300 against it so you can tie those two things out I could say this was the invoice amount was the full amount minus the payment that was that was received and these two things are basically linked together that's not quite so clear over here because the sales when I see the invoice it's recording after I counted for using this kind of funny item the $100 decreasing it back down for the 530 instead of recording it at the full amount which would be the 630 minus you know the $100 basically prepayment so I don't think it's quite as clean it's not quite as clean to see the link between these two items because these two items don't usually aren't usually related because they both represent sales rather than the payment which is usually the thing that ties to an invoice form so the bottom line to me is I think method number one is actually easier from a bookkeeping standpoint and I think if the bookkeeper you know likes that if we're liking that from an accounting internal accounting standpoint then we might want to use that method and then make periodic adjustments at the end of the month for any to adjust the accounts receivable and unearned revenue as we'll see but in some methods in some companies maybe it would be advantageous to use the second method to report everything properly in terms of a financial reporting basically as we go and that might depend on what kind of advanced payments we're getting are they going to be deposits on guitars like we're talking about here or is it like an advanced payment like all of our payments are advanced payments because we have a subscription model or something like that may have an impact on your decision processes alright but that's the general idea and we will still if I we will still go go to some of these negative balances here for Eric music and here and we'll see how those will be impacted when we do the period and adjusting processes in future sections or presentations or course so let's go and go to the reports drop-down and account and taxes let's just take a look at the trial balance to see where we stand as of now going from 010123 to 123123 let's customize the report and fontine and numbering and let's bring it to 16 okay yes and okay so if your numbers tie out great if they do not tie out then possibly change the dates see if it's a date range thing drill down on it making the changes necessary at the end of this month data input will go through the transaction detailed report helping us to hone down drill down in on any problems at that time