A lot of Home Watch businesses deal with customers who prepay or pay in advance. They may want to give you a check for the entire season, or they live abroad and it's easier to send you a large check from which to draw. What is the best way to manage these in QuickBooks and be able to track the remaining prepaid balance?
It's actually quite simple, provided you only have small amounts. In that case, this blog is the best course for you.
If you have a lot of prepaids, and fairly large amounts, you should consider using a Prepaid Liability account which is a lot more work, but accounting-wise is the proper thing to do. Using this method could make your Accounts Receivable account balance negative which isn't really great accounting. If you want properly managed accrual-based books you should consider the alternate method, which we have detailed here.
But, if you have a few follow this guide. The first step is recording the payment received. In this example we'll assume you received a check for $500. Enter the check, as usual in the using the Receive Payment entry screen.
Fill in the customer, select Check as the payment type, enter the Check Number as a reference, and Undeposited Funds (Always!!) as your Deposit To Account. You'll notice that QuickBooks will also pop up a warning that this client does not have any invoices to pay with this check. That's OK, you're just entering in a prepayment.
Scroll down and you'll see that the whole is going to recorded as an "Amount to Credit" to this customer's account.
Click Save. You've now recorded the prepayment in the system.
If you bring up the Customer's Account screen, you'll see he has a credit balance, and that the payment is recorded and marked as Unapplied.
Once the customer has an invoice or two against him, it's easy to start applying the prepayment amount to the invoice. Here is his account with an invoice that has an open balance -- you'll see that the account itself shows the net amount $220 balance ($500 payment less the new $280 invoice), and that the invoice's status is Open, while the payment is still Unapplied. Click on the Receive Payment link to apply the two.
On the receive payment screen, you can leave the top section blank and the Amount Received as zero -- you haven't received a new payment so therefore there's nothing to add. All you're doing is using this screen to apply the credit balance to the open invoice in order to mark it paid. QuickBooks will actually fill in the numbers for you -- in this case we're paying the full amount of $280 from the on account balance. You can see how $280 is paid against the invoice and $280 is being deducted from the payment. This is what you would expect.
If you go back into the Customer's Account screen, you'll see that the balance is still $220 credit, but the invoice is now marked Paid, and the payment has been partially applied and shows the balance remaining on it.
That's it -- you can easily record multiple advanced payments and apply them to multiple invoices as necessary using the above steps.
For more guidance on your Home Watch business -- QuickBooks, Scheduling, Customer Management, Reporting -- call us!