When you create and send an invoice in QuickBooks, this creates an accounts receivable transaction. Although this is the most common, there are other accounts receivable transactions you may need to enter occasionally in QuickBooks. In this episode of MissionBusinessPodcast.com Bernard Roesch shares unique accounts receivables transactions and explains how to enter them appropriately in QuickBooks.
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If you have invoiced a customer for services provided, but that customer is not able or willing to pay for any reason, this invoice turns into what is called a bad debt. In short, it is not going to be paid.
Bad debt needs to be documented appropriately in QuickBooks. You should not simply delete the invoice, as you already provided services and need to document this âs an expense i.e. as bad debt.
The way you document bad debt depends on your accounting structure:
- If you are on accrual-based accounting, you should record the bad debt as an expense to an expense account. You can record this with a journal entry or issue a credit memo on the customer’s record with the item as bad debt.
- If you are on cash-basis accounting, you would still use a credit memo, but not use bad debt as an expense item.
Bartering and In-kind Trading of Products and Services
You may want to trade your products and services for another company’s products and services, which is called bartering or in-kind trade. For example, an accountant might provide services to a contractor in exchange for the contractor providing services to the accountant. To ensure this is tracked appropriately, use the below type of process in QuickBooks.
- Both of you should invoice each other for the services, ideally with the same dollar amount on the invoice.
- You can record payment and deposit for your invoice that you sent to them into a fake bank account in QuickBooks, called Bartering, that currently has a zero balance.
- This will make the balance of the account be the amount of monetary value you received from their services.
- You can then record payment for the invoice you received from them out of this bartering account. This will bring the balance of the bartering account back to zero.
While this may sound complicated, it’s a method you can use to make sure you track bartering arrangements. If you’re only doing one bartering arrangement, it may not make sense to track it in depth in QuickBooks. But if you regularly barter with other service providers or merchants, it’s important to keep track of this information to ensure the bartering arrangement is fair for both parties.
Customer Down Payments
If your business regularly receives customer down payments and prepayments, it’s important to track those effectively in QuickBooks. The easiest option is to record these in accounts receivable.
- You would receive payment from the customer which would result in the customer having a credit on their account.
- When you invoice the customer in the future for services you provide, you can draw down on that available balance.
- If you use customer down payments frequently in your business, you should record them as liabilities instead of using the accounts receivable option.
- Recording these down payments as a liability is important so that you can track what you owe to customers.
- Because a customer is paying you money in advance of receiving products or services, that should be recorded as a liability in your accounting system rather than a credit on their customer record.
This is more complicated to set up in QuickBooks, but should be used if you regularly receive customer down payments.
We Can Help You
If your business has any of these unique situations or you want guidance on how to properly record unique transactions in QuickBooks, contact Bernard today.
You can also visit MissionBusinessPodcast.com for more insights that Bernard has been sharing with us in the previous episodes.