Sometimes a QuickBooks user will need to collect amounts from a customer while a job is being completed. Then they will need to record the entire amount for the completed job at the end of the process. Even though they have created several invoices along the way.
This way of doing things is generally used for large projects. A machine shop, an architect, a home builder, these types of businesses often need the capability to do this.
There are various reasons for recording the entire sale at the end of the job. Sometimes income is not recorded till the job is over. Sometimes sales tax is not reported until the job is complete and sold.
Your tax advisor can help you if you are wondering about this procedure in your business.
The first step in preparing for this scenario is to create the item for the customer deposit.
The Customer Deposits account used in the item setup should be an Other Current Liability type of account.
In our example, we will use just the one customer deposit item. Some businesses, where this is common and a set schedule for payments is maintained, may setup several items. They could be labeled Customer Deposit 1, Customer Deposit 2, etc.
When it is time to invoice a customer for their first payment, an invoice similar to the one following can be created.
Note that this invoice will not create any income. It only creates a deposit, paid by the customer, before the job is complete.
Also note that the item is non-taxable for sales tax purposes. You can see that designated in the Tax column, the right-hand column on the invoice.
Several invoices for deposits can be created as needed. Custom reports can be created that will show how much each customer has in customer deposits. Simply create a transaction report for the customer deposit account and total by customer.
At the end of the job, when the completed project must be invoiced, create an invoice like the following.
In this example, the complete contract was for $3750. The customer was invoiced for $750 in month 1 and month 2.
Those invoices were for a deposit, they were not recorded in QuickBooks as sales. They did not create a sales tax liability.
The final invoice creates a sale, revenue to the business, at the time the contract is complete. The revenue amount is the entire contract amount. The $3750 is taxable for sales tax purposes.
The lines for the customer deposits are entered as negative, reducing the amount of the final invoice by the amounts of the previous deposits. These must be marked as non-taxable on this invoice as well.