Podcast WSW - Accounts Receivable Nuances in QBO
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[00:00:00] [00:00:30]
[00:00:38] Introduction and Holiday Greetings
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[00:00:38] Dan DeLong: Welcome to another Workshop Wednesday brought to you by School of Bookkeeping. com, where it's casual conversations for serious workflows. And welcome back from the, from the holiday, Rachel, I hope you had a great Thanksgiving.
[00:00:53] Rachel Dauchy: Yeah, it was really great. day. Definitely happy to be home though.
[00:00:59] Dan DeLong: [00:01:00] Awesome. I myself had a great Thanksgiving as well. so hopefully everyone, everyone watching did did also did as well. in case you were wondering, and noticed, we were originally having, scheduled to have, Sean joining us again from, but, we had, we had a cancellation last week, due [00:01:30] to illness and whatnot.
So we pivoted and, We also, I didn't confirm that this week was good enough for him.
[00:01:41] Rachel Dauchy: how dare you a
[00:01:43] Dan DeLong: little bit of panic this morning. But we, fortunately I already had artwork created for next week. And so we are going to talk about today the subtle nuances of accounts receivable in QuickBooks online.
Because there are [00:02:00] some differences between desktop and online when it comes to accounts receivable.
[00:02:06] Workshop Wednesday CPE Credit Announcement
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[00:02:06] Dan DeLong: before we get into our, topic, we did have an announcement that, the Workshop Wednesday will be eligible for CPE credit, coming really soon. Yay! So you, we're going to be partnering with earmark, on their, on their application to be able to get, CPE credit just by joining or watching the, [00:02:30] the workshop Wednesday, they will take care of the whole administrative, aspect of, getting your CPE.
you can watch us live and then when, And when it's available, typically it's going to be, five to seven days after the workshop. You can then take your, take the, quiz, to, to qualify for CPE. so just by listening to the workshop, you can, you can get some CPE [00:03:00] credit.
coming up on the deadline for a lot of, a lot of people. So we thought that might be a, good use, for, that. But just by listening to the workshop Wednesday, you'll be able to get some CPE credit. So who
[00:03:15] Rachel Dauchy: doesn't want to listen to us talk endlessly. I know my kids don't want to, but, there are people out there and it's so funny because I, every time I tell people what I do, [00:03:30] If I'm talking to another accountant, and they're not really like my QuickBooks friend, they'll usually say, Oh gosh, I wish I knew more about QuickBooks.
Oh man, I wish I, was an expert at it. I wish. And, it's really something that, if you're not spending a lot of time in QuickBooks, it can be really tricky.
[00:03:50] Challenges with Accounts Receivable in QuickBooks
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[00:03:50] Rachel Dauchy: And especially with, What we're going to talk about today with AR and matching payments. And, oh man, that's, I think the one [00:04:00] thing, and I'm so glad we're talking about it today because.
The one thing that I see messed up the most, I think, is AR.
[00:04:10] Dan DeLong: Yeah, and I think this all stems back to, the prescribed QuickBooks workflows. and those are superseded by AR. Convenience. that's when people get themselves into trouble, right? [00:04:30] Because, you have, in the sales process, you may or may not have, prescribed workflows that you have as a business owner.
Would take, take advantage of right where you have a non posting transaction, which would be an estimate that would then get turned into an invoice transaction and then later you would receive a payment and then later you would then have that deposited into your bank account. So that [00:05:00] workflow of.
the hip bone connected to the thigh bone
[00:05:04] Intro: to
[00:05:04] Dan DeLong: the, the, spine or whatever, the logical bone, to be connected to when that is superseded. And this is where, net deposited gets its name, right? Is that if someone is just going into their bank and depositing a.
Receiving a deposit and [00:05:30] posting that to revenue. That's when people get themselves into trouble because they've had all of these other workflows connected to each other and then they just put in deposit in and then now they've got. They've got a mess on their hands or you've got a mess on your hands as the, accounting professional, they, don't really care.
is that, kind of the, summation of what you've seen in
[00:05:58] Rachel Dauchy: your, Yeah. [00:06:00] I've seen, it's usually like one of two things. It's usually, I will come across folks that really understand using the accounting software, not necessarily QuickBooks, but. The concept of we're going to tell the software what's happening.
Things may come through the bank overnight and that's fine, but they have a general understanding that there's two sides to everything. And I don't even necessarily mean debits and [00:06:30] credits. I was just at the bank yesterday making a deposit. And I remember, oh, get my deposit slip. The deposit slip goes with the thing because you've got to have two sides with every single, transaction.
And so in the world of banking, it's not how it is in accounting, but the logic is still the same, right? We need to have a deposit slip saying, I'm making a deposit. Here's the check. This [00:07:00] is the amount that's going into the account, but I got to have something to tell it what's happening. And so that's usually like, whenever I talk with the folks that are like, okay, I got to make sure I get this into QuickBooks.
They usually, they understand we're, I usually just boil it down to this. We're just telling the software something's going to happen. I'm telling it that I'm billing somebody an invoice. I'm telling it that I'm writing a check. I'm telling it, I'm telling it, I'm telling it. The stuff then comes [00:07:30] in through the bank feed and will match to the things that we told it.
Then I run into people who have zero knowledge and they're just really trying to monkey something together. Now I have been there. I have done that. I get it. And in today's world, we have chat GPT, so there is no better place. to literally ask it. How do I dot in QuickBooks? And it will give you a step by step.
[00:08:00] So in, this day and age, the really things should be, even if they're not an expert. there's resources there. things really should be entered in. Correctly. Otherwise, you're going to have a mess on your.
[00:08:15] Dan DeLong: Yes.
[00:08:16] Understanding Accounts Receivable
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[00:08:16] Dan DeLong: So let's, let's start with the basics and we'll talk about the definition of what accounts receivable is and, I remember when I applied, add into it.
that was one of [00:08:30] the interview questions they asked me and transparency, I had no clue. So I did one of those circular answers when they asked, what is, what is accounts receivable? I'm, I was like, that's an account that you receive.
Just totally. I, always said this, 10 late 10 years later after I got hired that if I had to get hired by [00:09:00] Intuit again, I probably wouldn't have
[00:09:01] Intro: yeah
[00:09:02] Dan DeLong: Because I would have failed, you know the proficiency exam or something, that though. So somehow I got in
[00:09:11] Intro: Even
[00:09:12] Dan DeLong: despite that horrible answer of what accounts receivable is so I'm going to ask you, since you're going through your master's in accounting, what is accounts receivable?
And don't say it's accounts that you receive.
[00:09:26] Rachel Dauchy: there is a receiving part of it, but, oh, Jeff. [00:09:30] okay. So I'm not going to get into the nitty gritty of cash versus accrual. We don't really use accounts receivable when it's a cash basis. Usually when I'm talking about accounting, I am always talking about accrual accounting.
That is so I want
[00:09:47] Dan DeLong: you to give the textbook definition of the QuickBooks definition.
[00:09:52] Rachel Dauchy: Okay. Okay. and, again, usually when I talk about accounting, it's usually how does the corporation do it in the business? [00:10:00] so there is in the accounting software, wait again, tell the software that I have. the money.
Okay? And so for our purposes today, I'm just going to say invoice. So I have, let's say I am a landscaping company, Craig's landscaping, and I did some work for the month and [00:10:30] I'm going to send my client a invoice. Okay. They, it's up to me. I may give them 30 days to pay, but that invoice gets recorded to the system on the day that the invoice is issued.
And that is when we have earned the money. Okay. Now they get the end. Your customer gets the invoice. Maybe they don't pay it for 25 days. They pay it and maybe they pay it in the next month. [00:11:00] that is just the cash that's received. The invoice was already recorded. to revenue. So an invoice is the revenue posting force document.
Okay. So an accrual basis accounting that is the invoice date. So it's up to you whether you invoice ahead, maybe you invoice behind, but that invoice date is gold because that is when you earned the money. [00:11:30] When they pay that invoice, that could happen, Long down the road and, you maybe you never get that invoice collected, but it's been earned.
So it's on the books as of the date that the invoice was issued. And let's say you've got multiple invoices that is called accounts receivable. So that total of all of your outstanding invoices. and in QuickBooks world, when we send [00:12:00] somebody a source document, it's an invoice. When I receive something to pay, it's a bill.
But so when we're talking about in invoices today, I'm invoicing my customer. And so it's that source document. You then you send a thousand invoices. That's my accounts receivable and in QuickBooks, you can run what's called an AR aging and it will show what invoices are due to you to be paid 30 days, 60 days, [00:12:30] 90 days.
And so that's the gist of accounts receivable.
[00:12:33] Dan DeLong: Yeah. And the way I would explain people, when they would call in and, like, Why is this so important is because, and you can probably relate, in your, e commerce world of, clearing accounts is really that's what accounts receivable does as far as QuickBooks is concerns is accounts for the passage of time from the time that you [00:13:00] create an invoice to the time that you receive payment.
Just like undeposited funds is a clearing account of the time that you've received a payment and the time that you take it to the bank and actually deposit it. So that's the QuickBooks definition of that account is that it's really just a clearing account. It's it is. It classifies as a special account.
you can use air coats, not like it's a short bus, type of [00:13:30] special account. It's, it has functionality tied to it so that, the workflows, connect together, right? So their invoice and payments and credits and those types of things all come into this. Accounts receivable account, and then they get applied to each other and connected to each other so that the open balance, as you were saying, will get paid.
And that's how, [00:14:00] QuickBooks reconciles that account is by applying. Open transactions together so that they are paid or closed and then they're no longer open. You were going to say something while I was interrupting.
[00:14:15] Rachel Dauchy: No, That's super. Yeah, that's the gist of everything. And so just back to when I was making a deposit yesterday at the bank.
It's like double, that's what double entry bookkeeping is. There's a debit and a credit for every side. [00:14:30] If you don't need to be an accountant and understand, that a credit increases accounts receivable, but you do have to understand this, concept of that we're always going to have two sides.
And when I say two sides, invoice payment, Now we do a lot more, volume and stuff sometimes with the credit card swipes and all kinds of stuff that [00:15:00] still has. Invoice payment, It may not be an invoice. I'll usually call it a sale.
Sale, payment, sale, payment. We reconcile in those clearing accounts. Like you said, there's always two sides. So in accounts receivable specifically, It's invoice, What pays it? Cash, And so those two meet up. Now, I've worked in places where people, say [00:15:30] there's an, an, invoice for, 500 and then a payment comes in for 750.
Let's say the person writing the check on the other side, like misunderstood, or just wrote the wrong amount. I've had it where, I'm places that I've worked where the people just apply that wrong amount to that invoice. And that doesn't clear that out. So I'm a stickler for the [00:16:00] exact payment.
It has to clear up the exact invoice. or if they're writing a check to pay several invoices, they send some kind of remittance or something of what's being Paid so that it can get real ugly is basically what I'm trying to say. , it can get really, ugly and, ar clerk that really knows what they're doing is worth their weight in gold because [00:16:30] sometimes.
they really have to, make sure that they really understand how to apply payments now. QuickBooks is in. You'll probably get into this. QuickBooks now is so has so much razzle dazzle that it'll automatically match those payments up, even if it's a complex Deposit, it'll find the invoices and it'll match them up and all that jazz.
But, I'm really just talking to the mechanics underneath it.
[00:16:59] Dan DeLong: Yes. And [00:17:00] that's, where, things get really difficult when you're in, when you're in the throes of a cleanup project or something like that, where you have misapplied payments or credits tied to different things where, you know, QuickBooks and it's infinite wisdom.
Automatically applied something that you didn't necessarily want it to, to a specific one. And then sometimes you have to go in and reapply those things. And that's a whole workshop in it's in and of itself.
[00:17:29] Differences Between QuickBooks Desktop and Online
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[00:17:29] Dan DeLong: But [00:17:30] what I wanted to, Really focus on, this workshop is the subtle differences between maybe desktop, desktop and online when it comes to accounts or seal, because a lot of times when you convert from, desktop to online, some of those workflows don't, really tie together too well because of.
The specific nuance of how accounts receivable or in this case, how accounts [00:18:00] receivable behaves inside of QuickBooks online. And that's what we want to focus on today is those. Subtle differences between the two platforms.
[00:18:10] Handling Multiple Accounts Receivable
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[00:18:10] Dan DeLong: so the first thing is multiple accounts receivable, right?
QuickBooks online, wants you to only have one accounts receivable, desktop. Now I've got the desktop, showing here, but I have something blocking my way. [00:18:30] Where is, okay. this new layout is horrible. so here's, great books desktop. I have. created a multiple accounts receivable and every accounts receivable transaction will have this dropdown here at the top where I can choose various accounts receivables or not.
And I can, create these as a hierarchy so I can have a parent accounts receivable and [00:19:00] sub accounts receivable accounts. what is, The reason a business case for why you would have multiple accounts, receivables, Rachel, would you, would, you even advise on that? I know this is a desktop thing and you're mostly in QuickBooks online, but, Have you seen, in your business experience that where they have on their chart of accounts, multiple accounts, receivable accounts.
[00:19:28] Rachel Dauchy: Yeah. it's basically [00:19:30] just a sub ledger, right? we have hundreds of sub ledgers that all go into the general journal. but. For me, it's too complicated. I just want one accounts receivable already. Like accounts receivable is my least, okay, nevermind. Payroll is my least favorite thing to do then accounts receivable.
And I just, I don't know. I just wish that, [00:20:00] If QuickBooks could ever come up with a way where all of that is automated and then I just don't ever have to touch it, that would be a nice day. But, yeah, I like it just all in one because, the way that I think about it is a lot of my clients are invoicing out of QuickBooks, but a lot of them are, also, selling online or selling in a store or whatever, taking credit card payments.
those have their [00:20:30] own clearing accounts. I like to have the, invoices that my clients are issuing and doing, or even if we're doing it for them, I like to have those all in one account. I want one undeposited funds. I want one accounts receivable. That way I'm not having to go, Oh, that is it.
That goes in that one. And that goes in that one, because there's always going to be things that are messed up. So for me, I just, [00:21:00] it's easier for me to wrap my head around it when it's just one AR unless they're there, it's a requirement for their business or I don't know. Sometimes like some franchises have certain requirements and stuff.
I, if I had the choice, I would choose not to do that.
[00:21:16] Dan DeLong: Yeah. and this is a double edged sword as well, because if you create an invoice on this, I have this departmental, accounts receivable account. If I create an invoice and assign it to [00:21:30] that, and I receive a payment on the main accounts receivable account, I can't connect the two because it doesn't have that.
Flow through.
[00:21:38] Rachel Dauchy: Yeah.
[00:21:39] Dan DeLong: workflow,
[00:21:40] Rachel Dauchy: you're opening up room for error by doing that. Yeah.
[00:21:44] Dan DeLong: So easily enough you go into the transaction and put it to the right AR account and lo and behold you can apply .
[00:21:51] Intro: Yeah. The
[00:21:51] Dan DeLong: credit or the payment to the, invoice. Yeah. but it's possible in, QuickBooks Desktop to do this with.
[00:22:00] Multiple AR accounts quickbooks online. No such thing. so this could potentially be, one of those surprises when you, when you move a desktop company to quickbooks online, and they have multiple AR accounts to begin with, because quickbooks online will only. support one and that's going to be the default one.
it says here in this article here, [00:22:30] whoops, with a survey, here we go. with, regards to accounts receivable or accounts payable accounts that you have duplicates. it will say, your default and only. AR and AP account are the ones that were created when you set up your company or you selected during conversion.
I've never seen, that selected during conversion, process. [00:23:00] So I'm, I assume it just chooses one of them as a default one. but if you do have to, Group or subdivide your open payables or receivables. It gives you other options in here, to create parent account, parent customers with subcustomers, to group your, open receivables or using, location tracking, to be able to do that.
So there are ways to work with that. And, if you want to [00:23:30] see this, this article, It's right here. There we go. Okay. So there's a QR code there. You can snap a, picture of it. and that's gonna, that would be a way to be able to do that. But if you do have multiple ARs and, And it comes over into, QuickBooks Online.
And you wanna transition to this as it's saying in here, if you, this [00:24:00] tip, if you already have multiple AR or AP accounts, consider merging them, right? Because there won't be a dropdown on any accounts receivable transaction to be able to choose one over the other. It's always gonna go to just the default, AR account.
And then, if you do merge them, then you can use. something like this to, to separate that out so that you still have the departmentalized option, with regards [00:24:30] to, a business need, for, to be able to do that.
[00:24:35] Intro: Yeah. So
[00:24:36] Dan DeLong: that's, one, nuance. the other nuance is, I have my notes here, let me just, pull this up.
da, QuickBooks Online, unlike Desktop, this is, one where QuickBooks Online gets, gets the nod. when you do, need to move, [00:25:00] transactions from one, If you do have multiple ARs, or if you have a transfer of credit, from one customer to another, typically in QuickBooks desktop, you have to do two journal entries or use the transfer of credit functionality, which it creates the, two journal entries to do that because it doesn't allow the desktop doesn't allow you to create a transaction that references more than one.
Accounts receivable or accounts payable account. So [00:25:30] if you wanted, if you had a customer who was also a vendor and you wanted to move their credit. from one to the other, you still have to make two journal entries, in order to do that. QuickBooks online allows you to have one transaction with multiple references to AR, as many times as you want, right?
that's one of those nuances that you're able to do inside of QuickBooks online, so if you have [00:26:00] this wash account or, maybe an adjusting customer just to. Put a put something on the AR balance and then you want to go later and split that out to specific customers. You can do that on one transaction rather than hate.
creating these multitude of journal entries, to be able to split that adjusted accounts receivable or accounts payable balance and split that out into, the individual [00:26:30] customers that you want to have those balances. that's another nuance and. Tip of the hat, that QuickBooks online allows that and desktop doesn't.
Sorry, desktops. so there's, there's that, nuance as well.
[00:26:46] Cash Basis vs. Accrual Basis Accounting
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[00:26:46] Dan DeLong: And then cache basis. Now I know you said, you didn't want to get into cache basis or, or, accrual, but, there is a common question where you have, [00:27:00] where did I have it here? There we go. Okay. on a cash basis. Now, in a grand scheme, in the grand scheme of things, as you mentioned, an accrual basis, you recognize the revenue on the day that you record the invoice on a cash basis, you recognize the invoice, or the revenue on the day that you received the payment, right?
So that's really the, QuickBooks, nuance of all of that. So in [00:27:30] the grand scheme of things, if I have an invoice that is not paid, I would not expect it to show up on a cash basis balance sheet, if it's not been paid. So in, in the, so normally, the expectation in, in QuickBooks is that if I run a cash basis balance sheet, I would have notes.
balance in my AR because
[00:27:57] Rachel Dauchy: you're saying balance sheet, but it's P and L. [00:28:00]
[00:28:01] Dan DeLong: No, I'm saying on the balance sheet, the article I'm showing here is a balance sheet. So if I have a hundred dollar invoice and I, and it's not been paid, and I run a cash basis balance sheet, I would not expect to see that a hundred dollars in my AR balance on my balance sheet.
However, a lot of times you will see, balance sheet. A balance on a cash basis balance sheet in accounts receivable or accounts payable, [00:28:30] and that there's a reason for that. And typically, it's down here in these, these articles, but what it boils down to is that on a, on an invoice, you have. a line item or something that is pointing to another balance sheet account.
and in this case, the first one here is sales tax, right? So in,
[00:28:56] Intro: when you
[00:28:57] Dan DeLong: have, you create an invoice at a hundred dollars and [00:29:00] you're collecting 8 percent sales tax and it's not been paid, the sales tax payable needs to be affected even on a cash basis account, a balance sheet. So that 8%, will show up.
In accounts receivable, not on sales tax payable.
[00:29:19] Rachel Dauchy: Okay.
[00:29:21] Dan DeLong: And that whole, the whole reason behind that is that these balance sheet accounts need to be impacted. Even if the transaction's not [00:29:30] paid, the only place that QuickBooks has a place to put that is in accounts receivable.
[00:29:36] Intro: So
[00:29:36] Dan DeLong: otherwise you'd have a balance sheet that's out of balance and that's false advertising.
[00:29:40] Intro: Yeah.
[00:29:42] Dan DeLong: So
[00:29:43] Intro: in
[00:29:43] Dan DeLong: order to do that, so another, another scenario is security deposits, right? So if you're, if you've taken a deposit, you're typically going to put that on a balance sheet of unearned revenue or whatever that might be, in order to [00:30:00] keep that in alignment, it's got to put that. somewhere on the, balance sheet to offset it.
And that will be, in accounts receivable. And this amount is not reflective of the total amount of the invoice, right? So that's what gets people confused. because, it, the other, the other, big thing is inventory items, right? So [00:30:30] if you have a sale that involves inventory items, The cost of that inventory that's not paid yet, paid for yet needs to be reflected.
And so that's where you see like all sorts of weird numbers showing up in your, cash basis, accounts receivable balance sheet. And, and that's where people get so it'll
[00:30:53] Rachel Dauchy: be the COGS amount in recognize that in AR, even if the cash basis invoice hasn't been [00:31:00] paid.
[00:31:00] Dan DeLong: Correct.
[00:31:01] Rachel Dauchy: Oh, I didn't realize that.
[00:31:02] Dan DeLong: Now, I know that even if they are paid cash basis, about, financials, when inventory is used in QuickBooks online are wonky to begin with. So
[00:31:20] Rachel Dauchy: I don't ever do use cash basis, even for service based folks. I, it's just not my thing, but I was going to say the other [00:31:30] side of what you were saying, On the P and L is that on a cash basis, you, I just wanted to mention, you still are creating an invoice.
You still have the two sides. The invoice is posted to QuickBooks, but you're not putting it in revenue at that time. It's just sitting there. It's when that payment is received is when the revenue is recognized. If you're looking at a P and L, if you're [00:32:00] on an accrual basis, and I've just created a whole bunch of invoices today, it's going to show up in my month of December as revenue.
If none of, if I'm on a cash basis and none of those are paid until January, that's only going to show up in January. And so that will get posted directly to revenue. Now, the reason that I don't do cash basis is [00:32:30] because It's been drilled in my head. Oh, just all of my education for accrual based accounting.
I just don't, I do all of my data entry on an accrual basis, just period. That's for me, how it does it. If there's elements of QBO, sometimes we'll add things out of the bank feed, some expenses. So it's not like you said, it's like quasi accrual basis. It's [00:33:00] mostly accrual basis. We do all the data entry on an accrual basis.
We can then run a report on a cash basis and where that would be really advantageous is this time of year. So if I, like I have a client who invoices a whole bunch of stuff in December, And he typically doesn't get paid on that for 60 days. So what you're doing is you're pushing [00:33:30] your, income tax liability to the next year.
Now you're not saying I'm not paying it. You're just moving the date. That's it. Cause I know that some people get confused and they, think that, it means something else. It, all it means is a cruel basis means I'm recognizing the revenue now, and it's probably going to increase my tax liability or I'm going to recognize it next year.
And so for this year, [00:34:00] it'll decrease that, but next year it'll increase it. So it's literally just moving a time. So that's all it's doing. So
[00:34:08] Dan DeLong: if, and that brings up a good point because we're coming up to the end of the year. if you are filing on a cash basis and you're using accrual based transactions like, like invoices and whatnot, you may need to make some kind of adjustment, so that the, they're, in alignment.
This article here actually does give [00:34:30] you the, The steps to take and how to make those journal entries, to be able to, have that align for the year end. And then on January 1st, you have that reversing entry created so that it puts it back the way, the way it needed to go. So, this is a good article.
I have it. that's also a QR code there. You can snap a picture of that. I was very limited on the title. So [00:35:00] that's what CBBS is cash basis balance sheet in case you're wondering for those people at home. so anybody
[00:35:11] Rachel Dauchy: that is wondering in QuickBooks online, in the reporting section, in every.
financial statement, balance sheet and P and L, you can run it on a cash basis. Cause I, sometimes I'll get new clients and the, Oh, I'm on a cash basis. I'm like, no problem. I can run the [00:35:30] report on a cash basis. you want. So that's, I love QuickBooks for that because for my folks that do, and I have a lot of people filing on a cash basis, but, for our purposes, we just record the revenue at the point of invoice.
[00:35:51] Dan DeLong: And one last thing that we want to talk about, a little subtle nuance of accounts receivable.
[00:35:57] Best Practices for Managing Discounts and Credits
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[00:35:57] Dan DeLong: situation where they are [00:36:00] on a cash basis and the invoice has a negative amount on it. this could be an in a discount or an exchange, maybe they're exchanging items or something like that.
it's best not to do that, right? Because the definition to QuickBooks of a payment, or on, I'm sorry, the definition [00:36:30] of, recognizing revenue on a cash basis is based off of the date of the payment, right? So if you have a negative amount on. What would normally be a positive amount transaction of an invoice and then you put a discount on there QuickBooks assumes that's a payment, right, the way that it will do that, so let's say you have a 1, 000 invoice and you've given a 10 percent discount [00:37:00] And you put that on the invoice Then and you have multiple items right on that invoice to begin with QuickBooks will then take that 100 discount, which is now it's seeing at a payment on the date of the invoice and will Proportionately apply that to all of the open Invoice items on the invoice.
So when they're looking at their cash basis [00:37:30] reporting and they see weird numbers of What's this? I did not sell this, item for, 3 and 55 cents, but then they drill in on the invoice and there it is at its regular sales price of a 150 or whatever it is. That's what QuickBooks is doing on a cash basis.
report is taking those negative amounts. And putting and [00:38:00] applying them proportionately on the date of the payment, which is the negative amount that's on the invoice. So best. best practice here is when you have things that would be reducing the overall balance of an invoice and you're running things on a cash basis, don't use negative amounts on the, invoice.
Instead, Create a credit memo for those things and [00:38:30] that will allow you to be more, explicit of when you apply those things together, right? So you can change the date of the credit memo, put it to whatever date that you want that to be recognized and then. When you apply your credit memo to your, to your invoice, then you have, all things, look looking, swell.
[00:38:57] Rachel Dauchy: I'm guessing then you can create a [00:39:00] product service called. Discounts and then that will go to the appropriate place.
[00:39:07] Dan DeLong: Yeah. Which would, you would still view, if you did create a line item, that's discount discounts as a negative on the invoice, the credit memo would just be a positive.
[00:39:19] Rachel Dauchy: In the, yeah. Okay. I see. Yeah. Now, I see so many people put a negative as a line item, so [00:39:30] many.
[00:39:30] Dan DeLong: And in and of itself, it's not a bad thing if they're running all their reports on a cruel basis.
[00:39:37] Rachel Dauchy: But, I know some people do, especially that are invoicing because, I don't really have a lot of people that are invoicing.
with long terms. but there are people that do. So the thing is, if you're giving 60 to 90 days, which in this day and age, I'm horrified. [00:40:00] you can invoice in December and not get paid till February, March. So there are people that really do want to run on a cash basis. okay. and like I said, if that's how they file their taxes and that's how they need to do it.
Great. but I don't run into that for my clients too often, but I know people do.
[00:40:23] Conclusion and Final Thoughts
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[00:40:23] Dan DeLong: All right, I think we've exhausted all the subtle nuances of accounts receivable and QuickBooks [00:40:30] Online. Hopefully this was helpful. And we'll see you next time on the Workshop Wednesday. And we hope you all have a great day. [00:41:00] [00:41:30]
