what if customers pay before you give the product or service that you're
selling them this video will teach you how to record that in QuickBooks Online
if you have any questions about this topic you can leave them in the comment section below and
I'll do my best to help you and of course if you feel the video helped you I hope you will
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customer deposits and pre payments basically mean the same thing they are both a situation
where you received payment from a customer before giving them the product or service
the service is owed to the customer until you deliver the service we use the receive payments
window to record situations where the customer pays in advance QuickBooks Online cannot print
a deposit receipt the way QuickBooks desktop can if you follow the steps in the equivalent
desktop video however you could still print your own deposit or prepayment receipt from
Excel or any other source and simply record the transaction into quickbooks online so what
happens when the customer pays in advance well cash or undeposited funds must increase because
you just received money from a customer and when you receive money from a customer accounts
receivable and the customer records go down this means if it's a new customer and this is
their first transaction they will actually have a negative balance and that indicates that you
actually owe them until the service is rendered the payment stays in the customer records as an
unapplied credit until you actual we do the job and earn the income so that means at the
moment we actually deliver the service accounts receivable goes back up from the reduced amount
that we recorded when we receive the payment and of course because we delivered the service the
income account that we earned goes up as well at the moment we deliver the service now the way we
record this is that we make an invoice the way we normally would when we do a job then after
recording the invoice we use the receive payment window to apply the new invoice we just made to
the past credit at the moment we receive the money for example let's imagine on March 24th alain paid
us seven hundred dollars cash in advance of a future job that is completely unrelated to
any currently open invoice we will record this in the receive payments window we will imagine
that the money was directly deposited into the bank account and we will not apply the payment
to any open invoice because it is meant to be applied to a future job now here we are looking
at the Allens section of the open invoice report before we record the payment to do this you open
the new transaction menu either click on the top left where it says new or if you don't have that
go to the top right and click the plus sign close to the cogwheel either one will open
the same choices in the new transaction menu and we go to the customer column and we go down and
click receive payment now the date in our little story for this transaction is March 24th of 2017
and we know that the customer is Alan and that the money was deposited directly to the bank account
and that the payment method in this case was cash the amount we receive and we type in $700 now be
careful QuickBooks will automatically put the check mark in the top one and apply it to the
oldest invoice what you have to do is remove the check mark so that the $700 is not applied to any
of the previous invoices because we did not do work yet for this particular $700 as soon as we
click Save and close the most important moment is this message this message is telling us that we
did not apply the credit or the payment to any particular invoice and therefore if we should
save it as a credit and in this case we agree with QuickBooks Online and we click Save as credit now
when we look at the open invoice report we see that we have a payment that's the only showing
on the open invoice report because it has not yet been applied to any invoice it will be applied to
the invoice that we actually got paid for at the moment we make the invoice let's take a look and
now let's imagine on March 25th we actually did the five editing hours that we got paid for the
day before and applied the $700 payment from March 24th to this job first we have to click
the plus sign go over to invoice choose Alan and of course put the date that we're doing in our
little story march 25th of 2017 in this case the item is editing and the number of hours we did in
this example is five that makes $700 for invoice number 22 for Allen on March 25th now when we
click Save and close which is probably the best thing to click you can see that the invoice that
we made is still open and the payment still has not been applied so at the very same moment you
make the invoice that you have already been paid for you click the plus sign you go to the receive
payments window and again you choose Allen make sure the date is the same day as the invoice that
we did the job and you have to obviously click both the invoice that we're getting paid for as
well as the unapplied payment check them both and only those two because the only reason that you're
in this receive payment window at the moment you're making the invoice is to simply apply
the previously received payment to the invoice we just made that means the actual amount received
on March 25th on the day you did the job is zero so we click Save and close and when we go back to
the open invoice you can see both the payment and the invoice have disappeared now before we
finish I would like to state clearly what's good about this method of recording prepaids
and deposits from customers what's good is that the customer records are always accurate at any
given moment and that it's easy to manage customer data and reconcile with customers
regarding what is owed and what is used however what is slightly imperfect about this method is
that the accounts and the chart of accounts will be temporarily inaccurate until the work
is actually done advance payments lowers accounts receivable instead of increasing an account called
unearned income which is a current liability but don't worry the ledger accounts can stay slightly
inaccurate in this particular way until it's time to report your numbers and then when you
have to if you have to report your numbers before you actually did the work then you can make a
normal accountant adjustment to temporarily fix your numbers until the work is done