 QuickBooks Online 2023 Progress Invoicing, Example 1, Estimate, Projects, Classes and Customer Deposit. Get ready to earn the skills needed to boost your bank books on up with QuickBooks Online. Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website, further 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 our QuickBooks Online Test Company file. We started up in a prior presentation. We also have open in a separate incognito window the free sample company file. If you want the to open at the same time, we suggest using incognito window which you can open if using Google Chrome, selecting the three dots in the browser incognito window typing into the search engine, QuickBooks Online Test Drive, selecting the option that has Intuit.com in the URL, Intuit being the owner of QuickBooks Online, the sample company being useful to enter data and practice input that we don't want in our test company file. And it can also be useful to toggle back and forth between the accounting view, the view the test company file is in and the business view the one the sample company file is in. You can toggle back and forth between those two views by going to the cog up top and switch the view on down below. Last time we turned on the progress invoicing which you could find in the cog up top in the settings on the left, sales tab on the left, and then you've got your progress invoicing that needs to be turned on. Going to close this out and run a couple different scenarios with the progress invoicing. So we can see this issue of the invoicing getting paid versus the revenue recognition concepts. So in order to do this, I would also like to turn on class tracking. Class tracking is something that will typically be available in the pro plus version and higher, I believe, and may not be available on the prior versions to that. But you can do similar types of things with the tags. So the tags is another option that you can basically use to do some of this functionality as we kind of track the projects. And then I'll also turn on the projects over here, which are common to be used in a job cost type of system. And the job cost systems are those where we have this revenue recognition concept. So I'm going to do some kind of double check in using multiple of these tools. We'll get an idea of what these tools are doing as well as the revenue recognition concept and how the progress billing can kind of fit in that as well. So I'm going to turn on the class tracking by going to the cog up top. Once again, the account and settings. And then I'm going to go down to this item for the categories. And we have two things within here. We've got the class tracking and the track locations. Now these do similar kind of things when you think about these two options. You want to be thinking basically the income statement, but sometimes some of the balance sheet accounts as well. But primarily we're thinking income statement accounts can be broken out by class. So so that's what we're looking into. But the location tracking will typically assign one of these kind of tracking items, which could be a location, but you might use it for other things as well per transaction. Whereas the class tracking will allow you to do a class per line item within each transaction. So if you have an invoice, you might be able to put a class on each line item within the invoice, whereas the location tracking would force you to put the entire invoice into one category. Now with revenue recognition on like a job cost system, the class tracking for our purposes may be better because if we were to purchase something like materials, it might be useful for us to have one expense form that can apply that purchase to multiple jobs in our case, which we might use the classes for as opposed to having that whole purchase be assigned to one location kind of field. Otherwise they're somewhat similar. Now note that if you have multiple things that you want to be breaking out and sorting by, then it's nice to have both of these because then you can have location tracking for example, and then also class tracking so that you can assign both of those to the same transaction because you can't normally assign multiple classes to one line item of one transaction. But you can you can assign a location tracking to the whole thing and then a class tracking to it. And then if you want further detail such as by by sales agent or something like that, then you can also use the tags but I'm going to turn off the location tracking now just the class tracking and also I'll save that make sure that that is going to be saved and then also in the in the expenses area. I want to turn on make sure the billing is turned on and I believe this is on by default now, but I'm going to say make expense items billable will use this later and then I'm actually going to use a markup of 30%. We'll get into the detail on this later. So if you don't save this now, I'll probably touch on it again, but we'll use that in the future, which is quite common for these longer term kind of job situations. Now the other thing we're going to look at is this projects thing over here, which is another one which may not be available. It's available from QuickBooks Pro Plus, which is what we're using here on up may not have as much functionality with this one. If you go into prior versions, so when you're thinking about your different tools that you're going to use, you want to keep that in mind. Again, you could use tags to do a similar kind of concept that you do in projects, but projects for a job cost system has for the most part a lot of times kind of taking over the concept of the jobs or sub customers. Although we could still use sub customers in alignment with projects because we could assign the projects to the jobs, but the projects a little bit different than the classes and the locations because the projects are going to be assigned to a particular customer as well. So we're not just assigning every transaction. These are going to be tied to a customer or that will have a project related to it, which is often the case for like a construction or a job cost kind of system. So for example, if I set up a new project here, I'm just going to say this is going to be project number one. Notice it's required that I tie that project to a job. So I'm going to tie the project to a job. And then I'm going to say I'm going to put everything as of 01. Let's let's make this let's actually make it in the middle of the 07 01. I'm going to be working in the future 2025. And then I don't know the end date. It's going to be in progress. And then we can put notes on the project. So we'll track it by projects as well. And hopefully this will become more apparent why I want to do like multiple tracking with the projects and with the classes when we get into some of our later kind of concepts. So now let's first do a simple kind of idea in our billing structure. We're going to say, okay, let's say we make an estimate. The estimates going to say that we're going to be having a $100,000 job. And that that we're for whatever reason, we're going to say that the billing structure is going to be this is our billing structure. So let's say that we have our job that we've we've told the client, we're going to bill you based on our billing structure, no matter what actually happens with the project. We're going to bill you this way. But as the project takes place, the project actually ends up running this way in terms of the of the cost. So then you get into this revenue recognition issue. So first, I'll I'll just run it as though we're going to bill it. We're going to just bill it with our progress invoicing. And we're not going to recognize we're not going to worry about the time frame with the revenue is recognized. And then we'll kind of record our costs as they happen. And then in the second project, we'll try to we'll try to do something more closer to like a percentage of completion type of thing just to see what the difference is. So let's say that we make an estimate. Now I'm going to say, All right, let's make an estimate. So we'll go OK. And let's go boom estimate. It's going to be an estimate form. And we'll say this is going to be for customer project one now. So it's for the project. And you might open that estimate from the projects field. So I could go into my projects. And here's my project number one. And so nothing's nothing, no income, no cost. Note that these projects as well will be tracking basically income statement items, but they give us a lot more detail in the in the transactions detail, the time activity, the projects. And they give us a little bit more capacity to allocate costs and some more integrations. Oftentimes with things like payroll when we're trying to allocate costs to the jobs. So so projects could be quite useful. All right. So we're going to say we could say that in here I'm not going to add a new project. What I would like to do is hit the dropdown and add an estimate. I want an estimate. All right. So now it's going to project one by default. And I'm going to say that this is going to be as of 070125. And then I'm just going to basically make up my my products that I'm going to sell. I'm going to pretend it's going to be a job cost kind of system. So the three major buckets that all of our items would be falling into would typically be some kind of materials, some kind of labor and then overhead. So I'm going to make just three items for those for those three items just generically. But in practice, of course, we would have more specialized items that we would be purchasing, which would fall into the general overarching categories materials, labor and overhead generally. All right. So we're going to say add I'm going to add an item and I'm going to make it a non inventory item, because I'm not going to I'm not going to track the item in inventory with like life 054 or whatever. This is going to be materials and materials. So they they've got a nice check on my spelling there. So hopefully I'll still mess it up. But OK, so we've got the materials and I'm going to say that's going to go here. And then the income account, I'm going to say is product sale of product. I'll try to keep that as my normal income. I'm also going to say on the purchases side when I when I have the materials, when I expense the materials, I want to go into cost of goods sold. So that allows me also to pull the materials into an invoice as an item and it allows me to also expense them. So so when I'm making when I'm paying for the materials, it's going to go to cost goods sold. And when I'm invoicing for the materials, it's going to go to sales of product that double thing can be a little confusing at first. But that's part of the process. So let's say the materials are 40,000. I'm just putting a generic number here for 40 and then I'm going to put a class now. I'm going to add a class and I'm going to say this is class one, which is going to stand for project one, project one, right? Or job one, right? So it's being redundant here because I already have it in project one. But I'm also going to class track it, allowing me to break out the on income statement, but also some balance sheet accounts by class. Okay. And so then I'm going to say the other is going to be labor. I think that's how you spell it labor and let's say a non inventory. Same thing. Copy that. Put it here. And then here this should be, I'm going to say sale of products. The labor is going to be a sale of product because we're we're going to be building something is the idea and then we're going to sell it. So then we're going to say cost to goods sold as the other side. And let's say that's for 30,000. And then I'm going to say one more, which is overhead, let's say non inventory overhead. We'll say boom, copy, selling. And this is going to be this is going to be here. Same thing. And here and cost to goods sold. So those are the major buckets that we would we would have our items into. So let's say this would let's say this was 45,000. I'm going to change it up a bit. And then 30 and then 70 and then 25,000 to get to that nice 100,000. Now these are all going to be going to class here. Now the class and the project don't matter all that much from an income statement standpoint because the estimate isn't going to be recording anything to the income statement yet. But if I pull over to an invoice from the estimate, then the class should pull over as well as the project should pull over. We can also add a tag if we want. I'll do the same tag project project one here. Let's say let's say tag job. Well, I'll keep it project one. It looks a little redundant when we say that, but just so we could see the different ways we can track that. All right. So then I'm going to say let's save and close it, save and close it. So nothing's happening in here in terms of the income and costs. If I go to the sales tab and I go to my, my all sales item, I can see my estimate down here. So the estimate is pending. I can send out the estimate and I can convert it to an invoice, which will give me that option since I have the progress invoicing to break out the invoice. I can also go to my customers and see I've got my estimate over here for, for the customers. If I clear that and I look at customer number one, then we have our, our estimates. Okay. So now oftentimes the first thing we're going to want to do is get money before we buy the stuff. So if it's a longer term project, so in this case, we're going to imagine we're going to take 10% down on, on the project. Now, from a, like I say, from a, from a revenue recognition standpoint, we would have this situation where if I jump to my flow chart over here, we're basically going to be receiving a payment before we did any work. Right. So, so you would think then normally we would have to say cash goes up and the other side would go into under and revenue or customer deposit, like a liability account or something. So I could actually use the receive payment form to do that. But I sometimes I might want to actually use the invoice because the invoice is the easiest form to convert the payment. So they actually pay me on it because they can have the easiest kind of payment functioning to get paid from it. So we'll get, so for the first, let's, we're going to first say, let's not even think about the, the revenue recognition. And I'm just going to do the easy thing, which is, which is to just get paid. And I'm just going to make basically my progress invoicing from the billing schedule that we already, that we already set up. So I'm going to go, okay, I just want them to pay us. So I'm going to say I'm in, let's go back to the projects. So we do everything from project one to make sure I have everything from there. And I'm going to say that we're going to get paid now. So when we, when we get paid, I can, I could do it a couple of different ways. I can hit the drop down and say that why I'm going to request for us to get paid. I can make an invoice here or I could go to the estimate itself and convert it to an invoice. So for example, if I make the invoice here, then it's going to be pulling customer one. And I've got this estimate thing that pops up on the left hand side automatically. The other way we might do that is to be looking at the sales tab over here. I could go to the estimate here or in customer one and say I'm going to create an invoice from this estimate. And if I create the invoice, it gives me my pop up this time before I go into the invoice. So I kind of prefer seeing the invoice. So I tend to say I would like to go into the projects and then go into project one to make sure I know where I'm at. And then I'm going to make an invoice. So there's the invoice. And now it's asking for me to populate the invoice from the estimate. So I'm going to say, okay, populate the invoice from the estimate. And there's our options. I can pull in the total, but I'm pulling in according to my payment structure, 30% down. Where did we come up with the 30, the 10%? I mean, we just made it up. I said, I just want 10% to start it for whatever reason. We constructed our billing process to be in this format most likely because that's what we think it's going to take for us to get the materials to get to get rolling on things. But we're going to say that's going to be that. Boom. I pull it in and it does this nice breakout giving me the materials, the labor and the overhead and this nice breakout between them. It pulls over the related class that we pulled in for the class tracking. It pulls in our project tab and obviously it's being assigned to project one. I'm going to keep the date at seven one. And this is quite useful from a billing standpoint because if I emailed this to them or if I had some kind of easy payment set up from the invoice. And our payment structure is set up through the invoicing. They can pay me as easily as possible with the invoice. That's the point of the invoice. So I'm going to say save and close. And so now we've got income being recognized. Now that isn't exactly right from a revenue recognition principle because we haven't really done the work yet. That's where the problem comes in, which we'll take a look at in future problems to kind of see what that looks like. But if I go over to the I'm going to I right clicked by the way and opened a new right click duplicate. And now I'm going to open up a report on the left hand side reports and see this thing building our reports. We want the balance sheet. So I'm going to open up the balance sheet report and then I'm going to right click on it again and duplicate it again. And so the balance sheet I'm going to make from 010125 to 123125. Run it. And so there's the 10,000 in accounts receivable, which is what we want because we want to get paid. But the other side is going to income, which I can see over here. If I go from I'm going to make this from 070125 to 123125. And I'm going to try to see this on a month by month breakout for the end of the year. So I'm going to say, well, this is the balance sheet again. Let's go to the reports. I want the income statement profit and loss. And then from 070125 to 123125. I'm going to break this out by months. Run it. So so there we have our income statement. The problem with the income statement is, of course, that we've got the income recognized. When from a revenue recognition standpoint, it really should be in a liability account. So the two ways that we can remedy that is we could have said instead of invoicing, I'm just going to do a receive payment, meaning I can tell the client, hey, look, based on the estimate, we need you to pay us 10% and not sent an invoice. But just tell them to pay us 10%. That works. But it's not as easy to connect the estimate to receive payment because the invoice often has the easy payment options. If we're using those payment options to get to make the collection as easy as possible, might not be a big problem, but that's kind of one issue. And if I hit the receive payment, it'll make a negative accounts receivable account, which is actually quite nice from a bookkeeping standpoint. But it's not exactly correct because you'd rather have a liability account that is going to be input from the customer deposit. But then you can match out that receive payment to an invoice that you make in the future. That's one method that we can use, and we'll talk more about that in the future. Another method we can use is to use the items on the invoices in a bit more complicated way so it doesn't record it to revenue when we create the invoice. So those are our options we'll take a look at in a bit more detail in future presentations. Just so we can see with the job costing, notice if I duplicate this, I can also run this income statement report by, not by months, but rather by classes. So this allows me, if I had multiple classes, it'll give me multiple columns, and it also gives me a nice total column to break these transactions out by class, which is quite nice. Now if you don't have the class tracking, you could use tags to do a similar thing, but the tags are a little bit more limited in the functionality of the reports. And the tags are, and you can also use some of the balance sheet accounts will also be broken out by the classes too, which we'll get into in future presentations. And then of course with the projects, they give you this nice little screen within the projects to sort your projects. And so you get basically another kind of income statement functionality reports that you can run by project, which are great for individual projects. But I still think that this also assigning the classes out is useful because then you can see all the projects that you assigned in essence in an income statement column by column format. So we'll continue with that in future presentations.