How to quickly/accurately track money received and still owed by clients making down payments?

Hi Amy,

Customer deposits for work not yet done (invoiced) should be recorded as a liability (unearned revenue, until work is done; until done, refundable to customer).

You can use sub accounts, under an unearned revenue liability account, one for each customer, to show what a customer has deposited, and not yet applied to a job.

Richard
 

You don't need subaccounts if you use the QB functions.

You create an Other Charge item that links to the liability account. Create a Sales Receipt for the customer using this item, to show you have received the deposit.

When you invoice them (or use a sales receipt) when the job is complete, you use the same Other Charge item, entering the amount as a negative, to show it reduces the amount owed on the sale.

You create a custom transaction detail report on the Liability account, grouping by Customer to see the subtotal for each customer.

For any amount of deposit not used, to return the funds you create a credit memo for the customer for the same Other Charge item (don't enter a negative amount here; credit memos are negative by definition) and QB offers to create a refund check for the customer.

When a customer's deposit has been fully applied (or returned, or both), you reconcile the liability account to the balance still on hand (from other customers) and clear the transactions for this one customer to show it is $0 for them. Then, that custom report you created can be updated, filter on "not cleared" transactions, and save this version of the report.

Now you have two reports: one is All Customer Deposit Transactions and one is Current Deposit Balances by Customer.

Using sub accounts will work.

Putting all deposits for all customers into one account would increase, I would think, the chance of making a mistake on what the customer’s correct balance is.

Keeping the customer’s deposit separate in a separate account (a sub account) would seem to me to be a more certain and less confusing accounting approach.

Richard
 

Of course using liability subaccounts works. I stated it's not needed, I didn't state it wouldn't work.

It is common to find liabiilty subaccounts on the chart of accounts, to manage customer functions that should be done using QB tools. Simply posting customer deposits to subaccounts bypasses the functions that tie this info into the Customer Center.

There is no visibility in Customer Center of amounts entered using Make Deposit.

You shouldn't create an item unique to each customer, to direct the amounts to the subaccounts.

Micromanaging using subaccounts overlooks the functions that utilize the Customer Center and make reporting more difficult.

For instance, with the method I describe in my first post (and used for 10 years) you can run the report "Sales by Customer" and set it up for Columns by Item Type. Now you will see all activity for customers, including the upfront deposit item activity: ins and outs. If you run a Sales by Item report, you also get great visibility.

The reports I describe in my first post are based on the liability account. Item reports are even more useful in QB to evaluate Customer activity and Sales activity. That is, if you are using the QB functions and not simply posting to subaccounts.

Hi qbteachmt,

I sometimes have trouble following your statements.

For example, this statement from your first post:  “you reconcile the liability account to the balance still on hand (from other customers) and clear the transactions for this one customer to show it is $0 for them. Then, that custom report you created can be updated, filter on "not cleared" transactions, and save this version of the report.”

And an example for your second post:  “you can run the report "Sales by Customer" and set it up for Columns by Item Type. Now you will see all activity for customers, including the upfront deposit item activity: ins and outs. If you run a Sales by Item report, you also get great visibility.”

I keep reading over these statements and find myself confused in trying to understand the statements.

I do not doubt that you are correct. I am just having a difficult time in reading what you write and then going to QuickBooks and reproducing what you suggest.

Richard
 

I guess I don't understand what you are asking of me, RIchard. You didn't ask a question.

Balance sheet accounts are how you manage the type of funds that AmyWWS has asked about.

Balance Sheet accounts other than the bank accounts and credit card accounts can and should be reconciled. This includes asset accounts such as Employee Loans and liability accounts such as Payroll and Customer Retainers.

If you create the By Customer version of the report I mention first, you can see the subtotal for a customer and see when it is $0. This means you posted all deposits received to charges incurred by this customer. The balance in the Customer Deposits account can be used to reconcile the account, and the reconciliation process is where you clear all transactions for the one customer you now know has a balance of $0. This usually means checking off one entry for the payment in and one or more entries for the payment(s) that were applied to charges. This is not changing the account balance, this simply is clearing transactions for the one customer. The reconciliation screen includes names.

This is the same as for trust accounting and landlord's security deposits. If you accept funds from others for services not rendered, you have to manage the liability account.

It's the same for an "Employee Advance" Other Current Asset account. You might have entries there from more than one employee. You create a report that subtotals by Name. Now you have visibility of each employee's amount. When one employee repays in full, you can reconcile the account to show their transactions are cleared.

Reconciling accounts and clearing transactions is a big part of making the "clean up" function work. Overlooking closing jobs and reconciling accounts results in very little data clean up.

You don't manage customer issues at the chart of accounts by creating subaccounts for everything. You manage them using Items and forms. If you use the QB functions, then reports such as Sales by Customer and Sale by Item have meaningful info. If all you do is use Make Deposit to liability subaccounts, these reports have no data to report; amounts received in advance from a customer and then applied to the sales amounts due are going to be harder to to see as part of overall sales and business activity. By posting to subaccounts, you simply captured the financial data, not the Customer data.

It doesn't matter, unless you want to take advantage of QB's functionality. Maximize the tools.

I had a client whose CPA set up every item as a Service item. This was a small engine repair shop, so there was no visibility on parts or other charges such as shipping. If you don't utilize the features in QB, you don't get good management data.

Richard, if you don't have a data file with good use of Items, then open the Sample files. Every version of QB has one or more Sample files with data in it. Run a Sales by Customer Report with columns by Item and then by Item Type, and then Sales by Item, to see what this tells you about the business. I teach my students how to read the reports, how to see what the data is telling you.

Hi qbteachmt,

Thanks for taking some time to clearly write your thoughts.

I think if you compare your writing in your last answer to the two examples of your writing I give in my comment above, you will agree there is a significant improvement in clarity.

Again thanks,

Richard