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Transferring a credit from one job to another

April 3, 2010 Leave a comment

Sometimes you have a customer who hires you for several jobs. This is great! For one thing it means they like your work. For another thing it means revenues for you and that is the lifeblood of every business. Many of us have been in the situation where perhaps we have more than one job going for the same customer. Maybe a construction company doing build-outs for 2 different locations. Ideally you will want to tell your customer that in order to keep the accounting clean you need to invoice separately and get paid separately. Most customers will appreciate this because they will want to job cost your work separately as well. This is always the cleanest way, but it isn’t always the most practical. Also we have seen plenty of situations like this where a customer over pays on one job and asks you to apply the credit to the other. When this happens we are presented with a problem in QuickBooks. The payment was assigned to the one job when it was originally received, and will show an over payment on that job. If you go to your customer payments screen and pull up the other job, you will not find the credit there such that you could simply apply it. The only way to fix this is through a series of journal entries. I take that back. You could do some QuickBooks gymnastics with credit memos and invoices – but that’s messy. We like clean. Theoretically you would simply book one journal entry debiting Accounts Receivable for the one job and crediting Accounts Receivable for the other so that you could simply transfer the credit and then apply it. Here we run into another obstacle. QuickBooks in order to protect you from yourself does not allow you to post to more than one Accounts Receivable Account or Accounts Payable Account in the same transaction. You could make quite a mess of your books if you don’t know what you’re doing – especially if you don’t know your debits and credits. So in essence you have to accomplish this by splitting it up into 2 entries. How do you do that? Funny you should ask. We set up a clearing account and run it through there. The clearing account always has to be zero before you walk away from the computer or close QuickBooks. If it is not zero something is wrong and all kidding aside you really want to fix it immediately or start over by deleting anything you posted there because it will be much harder to figure out later on. Then you will have to hire us to log in remotely and fix it for you. And we love that, but frankly we would rather you hire us for more interesting things where you will really benefit from the money you spend with us.

So what does this all look like? Well first let’s create the “Clearing Account”. I always set this up as a “Current Asset” – it really doesn’t matter as long as it’s on the balance sheet so you have an account register to work with and I like Current Assets because it puts it near the top of the chart of accounts.

First, open your Chart of Accounts:


Then Add a New Account:


Set it up as an Other Current Asset:


Then Name the account “Clearing”, and choose Save and Close.

Once you have done this you are ready to book the journal entries to transfer the credit over from one Job to the other.

This video tutorial will show you how.

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Symbol To Look For:

Video Tutorial:

   

 


 

Correcting Customer Payments and Deposits

March 14, 2010 Leave a comment

Don’t miss our live webinar on Saturday March 20 where we go over this and much more in a lot greater detail. REGISTER NOW

QuickBooks – how to correct a customer payment when the deposit has already been recorded.

Why?

What if you find that you made a mistake on a customer payment? Simple right? Find the payment and correct it in QuickBooks. But what if QuickBooks tells you that you cannot make that change because the payment is already included in a deposit? Ok sure, then just go to the deposit and delete it so you can fix the payment. But wait! There are othe    r payments included in this deposit, and those payments are ok! Moreover the deposit may be reconciled so I definitely do not want to delete it! What can I do then? This web cast will answer that question for you.

What?

This can actually be handled in a few simple steps.

  1. Delete the line item from the deposit containing the payment that was recorded incorrectly.
  2. Replace it with a temporary line item containing the same amount.
  3. Fix the payment
  4. Bring the payment back into the deposit
  5. Delete the “place holder” created in step ‘2’

So let’s say we just realized we received payments are recorded a deposit but we accidentally recorded a payment from “David Hughes” that was really from another customer, Erika Pretell. We don’t want to delete the deposit because there are other payments recorded there.

We also never want to delete a deposit that has already been reconciled. How could it be wrong if it is already reconciled? Easy – let’s say you’re a bookkeeper and you’ve been hired to clean up the books of Larry’s Landscaping and supply. You find that Larry really doesn’t know bookkeeping too well. What he has been doing is posting invoices and applying payments, but not recording the deposit, leaving the applied payments in “undeposited funds”. Then when he gets his bank statements he sees that none of his deposits are on the books, so he records the lump sum deposits and books them all to an income account. Well besides having a ton of money sitting in undeposited funds that needs to be cleared out, Larry has now duplicated his income. This is going to make Larry unhappy when he has to pay his taxes on twice the income, but doesn’t have twice the amount of money in his account. Also when Larry presents his Profit and Loss Statement to the bank for a Line of Credit and the bank finds out that his income is doubled there, they will not be too happy and will likely not extend credit to Larry. So it is really important to fix this stuff and it is equally important to know how to fix it without creating an even larger mess. You cannot delete a deposit that has been reconciled – it will through your reconciled balance off, so even if your payment is the only one in the deposit, on a reconciled deposit you cannot delete it, you have to use the method described above and demonstrated in the video.

In this video tutorial we will show you how to correct both scenarios.

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Video Tutorial:

Practice

Review this video several times until you really understand the material. Then open a sample company file and practice doing this. Do this 3 or 4 times and you will get it for sure!

Now What?

Now that you know how to do this you can first be aware of and look for situations like these where income is duplicated, and/or a payment was mis-posted on the books and you will now have mastered the knowledge required to correct these issues. You will know how to do this blind.

How to write off a customer balance in QuickBooks

March 2, 2010 3 comments

Hi! This is something that comes up often enough and someone asked the question on twitter, so I thought it would be helpful to post on the subject of how to write off a customer’s balance in QuickBooks. The process can be accomplished in a few simple and quick steps. But first a word on what not to do.

The temptation might be to post a discount on the customer’s invoice to reduce that invoice’s balance to zero. This works in theory, but here’s the problem with that. Ultimately as you create your set of books you are leaving a trail of crumbs for someone else to pick up on and look at later. It may be the person preparing your taxes and it may be someone looking to buy the company who’s books you are compiling as you do the bookkeeping each day. So it is really important to tell the right story. If I discount a customer’s invoice to zero that suggests that everything was ok and I decided for whatever reason to create some goodwill by giving that customer a discount. This paints a very different picture compare with when I am writing off a customer’s balance as Bad Debt because they chose not to pay.

So the correct way to handle this transaction in proper context is to record a journal entry and write the balance off as Bad debt. In QuickBooks it is simple and the video tutorial will demonstrate how to do this. First here is a screen shot of what it looks like in QuickBooks:

Then you have to apply the credit produced by going into Customer Payments and applying the credit of $13,500 for this customer.

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Video Tutorial:

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