Series

We have several posts here at Begin Coding Now that are on QuickBooks Online that are grouped into Series. Click the previous link to see the list.

In QuickBooks Online, how do you account for customers who have paid you in advance for products or services? Do your customers sometimes pay you before you give them the product or service that you sell? They probably don’t, but sometimes they might and this is good to know.

You need to know how to record customer deposits, down payments, and prepayments. Payments, deposits and prepayments all mean the same thing. They’re called down payments or deposits if an invoice is only partially paid in advance. It’s called a pre-payment, if the invoice is completely paid in advance.

Two Ways to do it

There are two ways to record this in QuickBooks, and we’ll look at each way in turn.

Let’s start with the “old fashioned” way, or the “Desktop method”. If a customer pays for a service that you have not yet delivered, then the company “owes” the customer the service. In QuickBooks Online we can use the Receive payments window. Since rthe customer has paid you, they will want to receive a receipt for their payment. You can print a Credit Memo that you can give to the customer.

In accounting, when a customer gives us money, either our bank account goes up, or undeposited funds goes up. The customer’s AR balance goes down. The payment stays in the customer’s records as an unapplied credit.

We can use the Receive payment window. We enter the customer name, the date and amount, but we do not apply it to any invoices. When we choose a customer, we can see their open invoices at the bottom of the screen. Uncheck them all because this payment doesn’t relate to any prior invoices. The Payment method was Cash and it goes, in this case, directly into the bank.

Check the transaction on the Open Invoices report. You should see it there because it has not yet been applied to an invoice.

Now we do some work for the customer. We’ll create an invoice. In our case it will be invoice 18. It will show up in our open invoices report, along with the $700 prepayment as a Payment Transaction type. Next, we need to apply the $700 prepayment to this brand new invoice. This is what the customer requested.

Click + New Receive payment. Select the customer. QuickBooks assumes that the credit will be applied to the oldest invoice, but don’t want to do that. We are making a “zero dollar payment” again. Be careful with the amounts and check boxes with this window. The unapplied payment is $700, the invoice 18 is $700 and the Amount received is $0.