How to record customer prepayments in QuickBooks Online

Do you ever get payments from your customers but you haven't yet invoiced them? What are you supposed to do?
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[@denisecm70]

Thank you! Great, detailed videos that make sense!

[@5MinuteBookkeeping]

You're welcome!

[@fcernst]

One of the best tutorials I've ever seen..Thanks so much!

[@5MinuteBookkeeping]

Glad it was helpful!

[@juniper.island]

Lot of poor or out of date videos out there, this one was the winner :D THANK YOU

[@5MinuteBookkeeping]

Thank you!

[@ahavataxservice3427]

I appreciate your videos. Very helpful!

[@5MinuteBookkeeping]

Thank you!

[@smanucha]

Great video. This is so so helpful in simplifying my process that was way too convoluted and error-prone!

[@5MinuteBookkeeping]

I'm glad it helped you Sanjeev!

[@teressagiesbrecht2759]

I have been looking for this solution for ages....thank you!!!

[@5MinuteBookkeeping]

You are welcome!

[@mzhu117]

Thank you very much. Our business has a lot of customer deposit and this really helps!

[@5MinuteBookkeeping]

Glad to help!

[@joehoward1346]

Great video. Very helpful. Thank you

[@5MinuteBookkeeping]

You're welcome!

[@Swampfox610]

Thanks! Exactly what I needed

[@5MinuteBookkeeping]

Glad it helped!

[@ranchpeople]

So helpful! Thank you.

[@5MinuteBookkeeping]

Thanks, Paula!

[@nansimbisharifah1675]

Sooo helpful.thank you for inspiring

[@5MinuteBookkeeping]

You are so welcome!

[@JACOB11929]

Great video! Very helpful :)

[@5MinuteBookkeeping]

Glad it was helpful!

[@uroospunyali8861]

Very helpful for my new job. Thanks.

[@5MinuteBookkeeping]

Great to hear!

[@cherylerickson146]

Best tutorial I have seen.

[@5MinuteBookkeeping]

Thank you so much!

[@muhammadrashid3307]

thank you vvvvvvv much helping me to understand how to record advance from a customer in quickbooks online

[@5MinuteBookkeeping]

You're welcome!

[@sunkanmibero]

Awesome video

[@5MinuteBookkeeping]

Thank you Ola! I appreciate all your positive comments.

[@caroltrimble2738]

Thank you very good

[@5MinuteBookkeeping]

Thank you Carol!

[@julieross8131]

Thank you! Problem solved.

[@5MinuteBookkeeping]

Glad it helped!

[@cathcobb3869]

This resolves so many mysteries of how to account for deposits on pet sitting care. I have clients pay 1/2 when they reserve. their spot. Sometimes that can be months before the work is done.

[@5MinuteBookkeeping]

Glad the video was helpful!

[@johnomalley2974]

Thank you for the awesome video. One quick question. How would I handle if the pre-payment was for multiple services (like tutoring sessions)? Say they paid $100 for two $50 sessions in advance and used them in separate months.

[@5MinuteBookkeeping]

That's a great question. You could apply $50 at a time. After you apply the two payments, the invoice will be closed out.

[@adriennedove8226]

Hi Veronica - thank your for this video. It was tremendously helpful for documenting a prepaid process for a client. What if we receive a customer prepayment via a credit card using QuickBooks Payments. Would this change the process? Would QuickBooks Payments expect us to match the payment to an invoice and not a Sales Receipt?

[@5MinuteBookkeeping]

Hi Adrienne. The process is the same when using QB Payments. You would match the deposit to the sales receipt in the bank feed.

[@emilialopez4346]

Loved it. I followed the instructions. Though one thing is left over, the actual money on the checking account in bank feeds in QBO, needs to be assign to an account. Based on instructions in video, at this point we zeroed out the A/P, A/R, and have and income in revenue and have a money on the checking account. So where do I assign the bank feed (QBO/Banking/Transactions)? B/c if I create a new invoice the income revenue will double. Can you advise? TY!

[@5MinuteBookkeeping]

If everything is entered correctly, then generally you would match the amount received in the bank feed to the transaction you entered in QBO.

[@emilialopez4346]

@@5MinuteBookkeeping yes got it thanks for the reply! take care

[@timbaker6108]

Any particular difference to set up the liability account as Customer Deposit vs Deferred Revenue? It seems that Deferred Revenue and Retainer Due, the customer obligation to pay is more finite than customer deposit that is still contingent on performance. That said, what are your thoughts?

[@5MinuteBookkeeping]

Hi Tim. That's a great question. No, there is no difference - you can use either account as long as it is set up as a liability account.

[@melodymercer7692]

Thanks! Can I issue an invoice for that retainer instead of just a sales receipt?

[@5MinuteBookkeeping]

Yes, you can.

[@brendabourne7756]

Hello, Nice video, clear explanation. I have very basic question; Client is going to purchase a product and place a 50 % deposit. But we need to send the client something to request the deposit payment? How do we bill this client for the 50% deposit, prior to receiving the payment? Do you use a sales receipt, an estimate or an invoice? This is to trigger them to send the money.

[@5MinuteBookkeeping]

Hi Brenda. You would need to send the customer an invoice for the amount of the deposit.

[@sherrylee836]

Thanks for the video! I am wondering how to pull out sales report for this particular customer if we clear his invoice in this way? Cuz all the invoice ends to with zero. How could we generate detailed sales data ?

[@5MinuteBookkeeping]

Hi Sherry. You could run a report of sales by Item and filter it for your specific customer. You could also run a report of sales and exclude the items used for prepayments.

[@johnwillis1371]

Great info. I only see one issue with this for QBO, and that is that the sale receipt will still force QBO to show it as sales in the month of the receipt. This means it will show up as revenue in the tax center for the quarter you revived the payment in, instead of the quarter you perform the serviced. In my state, we pay taxes for the quarter we perform the services. Any work around for this?

[@5MinuteBookkeeping]

Using this method, the income is recorded to a deferred revenue account. As a result, it will not be reflected in income until the services are provided.

[@janeh5949]

no, the sales receipt involves NO revenue yet. When you enter your product/services item , the item was set up to POINT TO a liability account on the S.R., not pointing to Revenue. The S.R. is just a way of receiving the $ and setting up the D.R. liability

[@LorraineMoody-cu3jc]

@johnwillis1371 is correct, even though the prepaid account is a liability account, it will still show up on the QBO Sales Tax Liability Report as a non-taxable sale. I agree that it shouldn't, but it does. At this point, I pull a sales report and remove the prepaid sales from the amount of sales I report to the state, because I don't know how else to remove it. Very annoying.

[@vergelemmanuelmata6701]

Hi, what's the purpose of creating Retainer Applied & Retainer Due? Newbie here, thanksss.

[@5MinuteBookkeeping]

For accounting purposes, you need to be able to track funds received in advance from customers. The Retainer Due and Retainer applied accounts allow you to do that, as I showed in the video.

[@rostomferia8342]

The Scenario: Our customer's relative prepays $100 as a surprise gift to our customer, but I don't know when our customer will avail a service from us. Question: Aside from doing the same steps mentioned in the video to record the cash received & liability, can I also use the Delayed Credit feature of QBO to serve as a pop-up notification by the time I create an invoice for the customer? TIA.

[@5MinuteBookkeeping]

Hi Rostom. I haven't tried that before but it might be worth seeing if it works in your situation.

[@rongz17]

Hello!! What about a credit card payment prepayment? With payments that come in with checks/ach/wires, it's easy to book those to the deferred rev account, but I cannot figure out how to do with while charging a credit card for prepayment.

[@5MinuteBookkeeping]

Are you using QuickBooks Payments or a third party merchant service?

[@mohamedali-kr1kq]

Great video thanks, but if I sell a subscribe service throw aggregators and they delay my money -prepayments from my customers - collection for 50 days, how can I record this expects cash flow in to trac them?

[@5MinuteBookkeeping]

Hi. I'm sorry but I do not understand your question. Perhaps you are using a translator? If so, it's not translating correctly.

[@robb4214]

Would this work for project based jobs? Its for a door knocking project. Initially I was splitting up invoices based on percentage of project completed. However during year-end is when I get confused because of how QB records invoices (based on invoice date instead of service date). Thank you. Your method seems like it might work for me unless there is a special GAAP rule for our industry?

[@5MinuteBookkeeping]

I can't answer your question specifically since there are at least a couple of GAAP rules for the construction industry including the completed contract method and the percentage completion method. But, I hope that my method helps you.

[@LegendaryNature]

Hey thanks for your tutorial my question is what you are sending for customer, are sending the sale receipts I don't think it's work.

[@5MinuteBookkeeping]

At 2:40 it shows you how to set up a sales receipt. You could also enter an invoice using the same instructions.

[@JulieAlbert-ow5uz]

My customer wants either an invoice or something prior to paying the retainer. What would I create? Hoping you can help! Thank you

[@5MinuteBookkeeping]

Hi Julie. You should send your customer an invoice for a retainer.

[@debbieruss2675]

Hi this is very helpful. What is the process if you have Invoiced the customer and you want to defer the payment over the year. The Invoice is already created, receive the payment but a portion of it needs to be deferred, what are the proper steps when Invoice is already created and customer pays?

[@5MinuteBookkeeping]

There is not a way to defer an invoice in QB. If the customer made a partial payment against an invoice, the unpaid balance will remain on the books as an Accounts Receivable until payment is received.

[@summerwang8600]

Very helpful video.,thank you. But in my QBO, there is no the choice of "other current liabilities" under Detail Type, can I use "Current Liabilities " or something else? Another question is how to apply the tax, choose "out of scope" or else? Will be very appreciated if you could reply.

[@5MinuteBookkeeping]

Hi Summer. It sounds like you are using a non-US version of QBO. You can use Current Liabilities. As for the tax, I don't know since US taxes are very different from taxes in other parts of the world.

[@honestplumbingandheating2591]

I am in Canada. Thanks for your quick reply.

[@natalyosio9608]

How would be the example with the sale of a product instead of a service? how would be the sales tax part?

[@5MinuteBookkeeping]

You would follow a similar process if you are selling products and receiving a prepayment from customers. I am not a sales tax expert and can't provide any specific sales tax advice, but I would think that the sales tax would be added to the full amount of the invoice.

[@adriennedove8226]

Hi Veronica - do you have a similar video for when a vendor is paid in advance using prepaid expense accounts?

[@5MinuteBookkeeping]

Hi Adrienne. I don't. But, in that case, you could enter a Vendor Bill to the prepaid account and pay it. Then enter another Vendor Bill to the expense account and reduce it by the amount recorded to the prepaid account.

[@adriennedove8226]

@@5MinuteBookkeeping Thank you!

[@muzammilamin3013]

Hey. What about receiving payment as advance usingreceive payment windows ? we can use it to record payment as advance receive or credits which shows credit balance in open invoices. Can we use that ? later can be applied to the specific invoice ?

[@5MinuteBookkeeping]

If you do that, QuickBooks will enter the amount received to an account called Unapplied Cash Payment Income in a cash basis Profit & Loss report. I don't recommend that.

[@muzammilamin3013]

@@5MinuteBookkeeping ok Thankyou..

[@kgreg2525]

I'm having trouble deciphering one aspect and maybe you can help me: If today is July 2021 and I create a rent invoice for Aug 1 (Aug Rent), my AR/AR subledger and revenue increase in August If customer pays me in July for this invoice and I increase cash and Deferred Revenue Then come august, how am I suppose to get my AR control account correct, w/o making the books messy? Any help on this would be greatly appreciated

[@5MinuteBookkeeping]

You would want to follow the steps that I showed in the video to do it correctly in QBO.

[@user-df8yh7ql3n]

I use the same process, but what's frustrating is that if the invoice that you applied the retainer "applied" portion and the remaining amount is owed, the report doesn't show it's been moved to Revenue. The liability report is always overstated compared to what is really in the liability account. Also, I found that if you return the remaining unused portion to the client, it will show a ($) amount in the balance. I'm so confused with how QBO is working behind the scenes.

[@5MinuteBookkeeping]

Hi. I'm not sure which reports you're looking at. I usually review the Profit & Loss and the Balance Sheet reports.

[@BerynNeeley]

What would the customer statement look like?

[@5MinuteBookkeeping]

I don't normally work with customer statements and I'm not sure how the statement would look like.

[@RyanImus-sy4sx]

I have been using this method since I started my business last year. My CPA just noticed a huge discrepancy in my sales tax reports caused by using this method. Any suggestions? I have been creating invoices for the retainer and deselecting taxable. When I issue the final invoice when services are rendered, that is taxable, and I select the box. I then enter a line item for the negative retainer as shown in your video and, again, deselect the taxable box on that line item. It has created a bunch of "wholesale" transactions in my sales tax reports and he is afraid that in an audit, they will not be happy when they see that.

[@5MinuteBookkeeping]

Unfortunately, I don't have any specific suggestions to handle it differently.

[@melvin_0bviously]

Ok, crazy question: I’ve created a sales receipt but there is no way this will auto-reconcile because 2 customers paid on the same day and the bank recognizes it as one transaction. So I need to split the transaction. I guess I split and then match the customers retainer with the sales receipt?

[@5MinuteBookkeeping]

Hi Jeffrey. I don't have enough information to be able to give you an answer. Perhaps you could provide more details?

[@dianagarcia9457]

How do you deposit the advance payment, if you did what you stated on the video?

[@5MinuteBookkeeping]

Can you be more specific? I'm not sure exactly which part of the video you are referring to.

[@quickbooksonlinetipstricks4081]

How would you run a report that shows you each customer's balance, whether they have a credit balance or owes you?

[@5MinuteBookkeeping]

Run an Accounts Receivable aging report.

[@janeh5949]

does this work the same way if I was paid say $5,000 and NOT the total amount. Only $5,000 was deferred revenue.

[@5MinuteBookkeeping]

The amount received in advance is considered deferred revenue. In your example, $5000 would be deferred revenue if it was received in advance.

[@MrGnarleysteve]

Hi there. It looks like this method will create a $0 invoice and that also sets the sales tax to zero. How do we account for the sales taxes?

[@5MinuteBookkeeping]

Hi. This method is more specific to service-based businesses that don't collect sales taxes. Sorry for the confusion.

[@juniper.island]

@@5MinuteBookkeeping But I just did this, included HST on the sales receipt, and it seems to have worked. Will this not report the HST to my tax accounts in the system?

[@bluegrassbodyfattesting6292]

So let's say the customer only prepaid for this one invoice (everything else was on account). When I view their invoice history, this invoice total will show $0 and not $15,000. How do auditors feel about this? The invoice itself was actually $15,000 and not free or $0. Or does the Sales Receipt also show in this customer's history?

[@5MinuteBookkeeping]

You're welcome, Greg.

[@janeh5949]

I did a practice run in the QB test drive. the S.R. shows in the customer sub ledger. The invoice will also show later, but it states 0.00

[@LM-tz9js]

How to recorded retainer to law firm ? Thank you

[@5MinuteBookkeeping]

Hi Lana. Law firm accounting is completely different. I don't do any law firm accounting. However, look up Lynda Artesani. That's her niche and she has very useful resources.

[@LM-tz9js]

@@5MinuteBookkeeping thank you!

[@hermana1753]

This method does not work if you are selling a taxable item. Most sales tax agencies in US require tax to be collected when you receive a prepayment even before you deliver a taxable product or service. So, "Prepayment" item has to be treated as an "Income" account, not an "Other Current Liability". I know this ruins a clear P&L report but, this is required by law. This was the reason that every comment related to this question was removed from Quickbooks.intuit.com.

[@5MinuteBookkeeping]

Thanks for the input Herman. There are many factors affecting whether sales taxes are collected on a prepayment and they are indeed dependent on each state's laws.

[@redoxicomanic3676]

I don't understand bookkeeping or QuickBooks, but the one single most important thing for me is recording prepaid or checks given in advanced at the start of the contract, but i don't see any guide on how to address this. At any given time, I have 100s of checks from 100s of customers, and customers that have paid in advanced for the hole year, so what should I do?