Applying Customer Credits

Sometimes a customer will have a zero balance, but will have open items in accounts receivable. This usually means an invoice and a payment or some other credit. The two transactions result in a zero balance, but they do not relate to each other in the QuickBooks system.

The above screenshot shows an Open Invoices report in QuickBooks. Reports->Customers & Receivables->Open Invoices.

The report shows an example of our topic. Both an invoice and a payment appear for the customer:job, Kristy Abercrombie’s Kitchen. In this case, it seems the payment was created before the invoice. Perhaps a payment was required by Rock Castle Construction before work would begin.

Since the customer balance is still correct, you may wonder what difference this makes. There are a couple of issues.

One problem is that these items will continue to show up on AR reports forever until they are applied to each other. They will also show up on customer statements filling those with unnecessary detail and making them more confusing for the customer.

If anyone creates reports for Rock Castle Construction on a cash basis, these two transactions will have a tendency to throw the account balances off.

So, let’s just simplify things and apply the credit to the invoice. It’s a simple process.

Above is a graphic of the Receive Payment window. Customers->Receive Payments.

Kristy Abercrombie:Kitchen has been selected as the customer:job. Note the bottom arrow.

QuickBooks reads that this customer has a $400 credit and inserts that information into the window. The top arrow points to the icon that will allow you to apply the credit to the one open invoice shown in the payment window.

Leave the Payment Amount at zero. Click on the line of the open invoice. Don’t place a checkmark in the left column as you would when actually receiving a payment from a customer. Just select the invoice line with a click of the mouse.

Then select the Discounts and Credit icon.

When the Discounts and Credit icon is selected, the above window will show on your screen.

The top arrow shows the checkmark placed by the credit we want to apply. In many cases, QuickBooks will already have made this selection for you.

Click the Done button indicated by the bottom arrow.

The payment amount remains zero. The two arrows in our screenshot point to the Credits column, which shows the $400 credit being used, and the Amount column. The amount is zero since the invoice is now completely paid by the credit.

Select Save and Close and the procedure is complete. Neither transaction will show on open AR reports.

Hector Garcia, CPA
Certified Advanced QuickBooks ProAdvisor
12401 Orange Drive #136
Davie, FL 33330
954-414-1524
hector@garciacpa.com

Hector Garcia

Hector Garcia

Hector Garcia is a CPA and QuickBooks Consultant.
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