Join Bonnie Biafore for an in-depth discussion in this video Recording customer prepayments with sales receipts, part of QuickBooks Advanced Bookkeeping Techniques.
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- Customer prepayments represent money you haven't earned yet. So you have to record the payment in QuickBooks, but also keep track of that unearned revenue. Using a QuickBooks Sales Receipt is one way to record customer prepayments. And you can print the Sales Receipt to give to your customer. The first thing you need to record prepayments is an account to track that money. On the homepage, head up to the company panel and click Chart of Accounts. We want this account to be an Other Current Liability Account.
That's because prepayments are kind of like short term loans. The customer gives you money up front, but you don't earn the income until you deliver services or products. To create this account, at the bottom of the Chart of Accounts window, click the Account button, and then choose New. Now, you don't see Other Current Liability in these options. That's because it's hidden behind Other Account Types. Select that option, and then you can choose Other Current Liability from the drop down list.
Click Continue, and then in the Account Name Box type the name of the account. We'll call it, Unearned Income. Go ahead and click Save and Close. Now we have our account. Because you fill out sales receipts, and other sales forms using items, you also need a Prepayment Service Item. Back on the Homepage, click Items and Services. That brings up the Item List Window.
To create our item, head down to the bottom left, and click the Item button, and then choose New. The Service Type is already selected, just click it. And then go to the Item Name/Number box. Click that and type the name, we'll call it Prepayment. Now make sure that the Tax Code, is set to Nontaxable. And in the Account Field, you guessed it, Unearned Income. Click the down arrow, you have the scroll up a little bit to see our Other Current Liability accounts.
Choose Unearned Income, click okay. And now we have our Prepayment item. Great, I'm gonna close this window, and let's see how to record a sales receipt for a customer prepayment. On the homepage, click Create Sales Receipt. In the Customer Job Box, click the down arrow, and choose the customer. Let's say it's Avulon. I'll leave the date set to October 8th. I'm gonna head down to the first item cell, click it, click the down arrow, and choose Prepayment.
In this case, head right over to the amount cell and type in the amount of the prepayment. Say it's 2,000 dollars. Now if you want to print a receipt for your customer, up here, click Print, and then you can print the sales receipt. In this case, I'm just gonna click Save and Close. And now the prepayment is recorded. Let's take a look at the money trail so far. On the Homepage, click Chart of Accounts to get back to the Chart of Accounts window.
Now the good news is, the Unearned Income Account now has a balance of 2,000 dollars. So sure enough the prepayment did exactly what we wanted it to do. We have an Other Current Liability of 2,000 dollars. Let's also look at Undeposited Funds. I double click that name, to open up the Undeposited Funds Register. Let me scroll back a little bit, 'til we get to October 8th. And there is the Avulon prepayment of 2,000 dollars.
You can see that it increased the balance because we haven't deposited that payment yet. Now let's take a look at what you do to apply the prepayment to the customer's next invoice. I'm gonna click the Homepage in the background to bring it to the front. In this case click, Create Invoices. Customer and Job is still Avulon, click the down arrow and choose the customer. Let's say that the date is October 9th. Now Avulon wants a catering dinner for a hundred people so you fill out this invoice like you would any other.
Let me just pull this up a little bit so we can see the whole window here. In the first blank Quantity Cell, type a hundred. Click the down arrow in the Item Code Cell, and choose Catering Dinner. Now the amount for this gala is 3,500 dollars, but we have that prepayment, and here's how you apply it in this case. In the second Item Code cell, click the down arrow, and choose Prepayment. To deduct the amount from this invoice, you type the number as a negative number, -2,000.
And you can see when I click away from that cell QuickBooks deducts the prepayment from what was owed so the balance due is only 1,500 dollars. Go ahead and click Save and Close. Now let's just hop back to the Chart of Accounts. On the homepage click Chart of Accounts to bring the window back to the front. And we're gonna scroll up a little bit, and double click Accounts Receivable. That opens up the Accounts Receivable Register window. And I'm going to scroll back until we get to October 9th, and you can see that Accounts Receivable is only 1,500 dollars for that.
Also, let me go back to the Chart of Accounts window. And notice, the Unearned Income Account is now zero, because we applied the prepayment to that invoice. That's how you record a customer's prepayment with a Sales Receipt, and then apply the prepayment to their next invoice.
- Examining profit and overhead
- Categorizing customers, jobs, and vendors
- Recording customer prepayments, credits, and refunds
- Selling consignment goods
- Handling vendor deposits, credits, and refunds
- Converting checks into bill payments
- Handling bounced checks
- Troubleshooting bank reconciliations