Archive for the ‘Revenue Cycle’ Category

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.


Symbol To Look For:

Video Tutorial:





This Blog sponsored by our Learning Center

November 19, 2009 Leave a comment

The reason we are able to bring you this is our Learning Center. Visit The Learning Center NOW to download full length tutorials from 1 – 3 hours. Just add a class to your cart, make your payment and our website shoots you an e-mail with a link to download what you need to watch your video class.

Visit our Excel Blog also for great free excel help and information: MS Excel Guru

The Revenue Cycle – Overview

May 30, 2009 2 comments

For a full length video tutorial on QuickBooks – Invoicing and Accounts Receivable visit our Learning Center Today.

Recording a Sale

Every business needs Revenue to survive. Accordingly the accounting software that we use whether it is QuickBooks or something else, will always have to have ample resources providing us with the ability to record and track our Revenue. The most common of course is the invoice, but that is not all. There are many ways a sale can be made across every type of business and the invoice may not always be the best device to use in recording our sales or revenues. The intention of an invoice is to capture the sale of a product or service that will be paid for at some time in the future. Of course there are sales that happen in your store and paid for immediately and those are captured with a “Sales Receipt”:

Figure 1 – Enter Sales Receipts

When we start a business one of two things happens. Either it starts with our first customer and the initial revenue, or we invest money into the business and use that in some way shape or form to get the word out that we are offering a product, or service, or both. At some point the first revenue dollar comes in. One way or another this has to be recorded in QuickBooks. It will usually be handled with an invoice or a sales receipt. Possibly before the invoice we may have issued a Sales Order to that customer when they placed their order with us. The sales order works exactly like an invoice does, except it is a “non-posting” item. In other words no income is recognized yet. Try this by posting a sales order in QuickBooks and the running a profit and loss. You will of course see that the sales order is not included in income. Of course there is a direct relationship between the sales order and the customer to whom that sales order is issued. In other words I cannot have a sales order without a customer associated with it. QuickBooks will not allow me to save the transaction unless a customer is chosen.

Once a sales order is posted, the next time I go to invoice that customer, the second I select the customer and then hit ‘TAB’ to move on to the next thing QuickBooks will deliver a pop-up message listing any and all outstanding Sales orders for this customer:

Figure 2 – Sales Orders

You can check off this sales order and QuickBooks will pull all of the information from the sales order and drop it into your invoice or you. If you go in and change the quantities on the invoice to something less that what was on the Sales order originally, then the sales order will remain open with the difference available to be used. Otherwise you will want to close the sales order without using it:

Any time the transactions get any more complicated than simple applying the entire sales order to the invoice you will want to use the Sales Order Fulfillment worksheet:

Figure 3 – Sales Order Fulfillment

The best way to learn how to use this stuff is to go in and play around to see what you can do with it. Back up your file first or use a sample company file so you don’t ruin the integrity of your actual QuickBooks company data.

One way or another we get the sale recorded. Of course you could just post journal entries, but that would defeat the purpose of using a program like QuickBooks which takes that technical accounting out of it and gives you these easy to use modules like an invoice form that allow you to enter transactions.

Getting Paid is good

If you record a sale with a sales receipt then the next phase in the revenue cycle happens simultaneously with the recording of that sale. With an invoice as I mentioned earlier it happens some time later, but hopefully sooner than later J. Of course I am talking about payment. With the sales receipt you record the payment right there in the form. There is a drop down in the form where you either choose to deposit the payment directly into a bank account or you choose to deposit the payment into “Undeposited Funds”. This is a special account used in QuickBooks to help capture payments that need to be grouped into the same deposit. I will explain more about this in a minute and I also go into great detail on how this works in our QuickBooks Invoicing & Accounts Receivable video tutorial. When you are working from an Invoice, you are receiving a payment as a separate transaction and QuickBooks gives you a dialogue very specific to this:

Figure 4.1 – Receive Payments

Then you will see this dialogue:

Figure 5 – Receive Payments Dialogue

Here what needs to be done is pretty straight-forward. You select the customer who paid and enter the amount, the payment method and so on. Notice the dialogue has a hyperlink that says “where does this payment go?”. This is the default setup and I recommend keeping it this way. The payment by default goes to undeposited funds.

The Undeposited Funds Account

This account is setup for the purpose of capturing multiple payments, which will be deposited together. Otherwise each individual payment goes separately into the QuickBooks Bank account register. This will not match up with the bank unless you deposit each check separately. As for credit cards QuickBooks simply will not match up with the batch totals that get deposited into your account. This way all of the payments are initially grouped in this “Bucket” called Undeposited Funds. This also properly breaks the cycle up into its proper segments, because receiving the payment is one thing, depositing it is another event. I could receive a check and hold it for 3 weeks or longer before I deposit it. I can accept American Express and they may not fund my money for as much as a week from the transaction date. So I can leave the money sitting in “Undeposited funds” until they actually get deposited. As long as there are payments sitting in Undeposited Funds any time I go to make a deposit the “Payments To Deposit” dialogue shows up. Any checks that are being deposited together should be checked off, then you click ‘ok’ and you are taken into the make deposits dialogue. Either you can add to the deposit if for example you were depositing your own check into the bank along with these customer payments, or you can simply click ok. As far as credit cards are concerned you should check off any Visa & Mastercard from the same day and deposit them together. Then go back and enter a separate deposit for any Amex transactions from the same day. There will likely be cases where two or more days are batched together even though you batch out every day. I suspect that the way the merchant services process this will almost always be a complete mystery – probably even to them. At the end of the day I just care about being able to match the transactions in QuickBooks with the bank account so I can reconcile the bank statement 100% accurately. This way I know for sure nothing was missed. The classic argument is that it isn’t worth worrying about a $2 difference. The flaw in that thinking is that a $2 difference could actually mean $1,000 deposit and a $998 check. And believe me I’ve seen this kind of thing many times.

For an approx 10 minute YouTube video on how to document your deposits click here.

Here is a sample of the Payments to Deposit screen:

Figure 6 – Make Deposits

Figure 7 – Payments To Deposit

Then when you click ‘ok’ you can complete the deposit the same as any other:

Figure 8 – Make The Deposit

Once the money is in the bank, the revenue cycle has been completed.

This is just an overview. Please comment with questions or actual comments.

Remember that we have a full length video tutorial in our Learning Center on our Main Site.