Then I don't understand. QuickBooks is an accounting package that doesn't handle journal entries? The feature exists, and QB instructs people to use JEs, so they at least pretend they work. Setting that aside, let's start over.
I deposited checks in 2021. These were early payments for 2022 invoices. What should I have done with those deposits so the Balance Sheet would be correct?
@DwhoaTreas
It is not a bug, it is how QBD Pro is designed. QB is able to handle journal entries (J/E) just fine, but you need to know there are limitations. I have companies that use J/Es for essentially everything except bills and bill payments and they work fine and produce accurate financial statements.
The issue here is that QBD Pro is designed to always credit (reduce) A/R as the offsetting entry for an overpayment of an invoice left as a credit for the customer. From an accounting perspective, that's not proper. Ideally, that overpayment should be a credit to deferred revenue, not a reduction in A/R. But QBD Pro does not allow you to do that AND leave a credit on the customer's account - at least not from my understanding.
So, you can do a J/E to move it to deferred revenue but you have to remember to reverse the entry if you use the credit on the customer's account because, at that point, the J/E is no longer applicable. A CPA will tell you to move the reduction in A/R to deferred revenue (debit A/R, credit deferred revenue). But, in doing so, in QBD Pro, you will still have a credit on the customer's account (from the credit memo issued from the overpayment - that didn't go anywhere) AND you have the journal entry that increased A/R and increased deferred revenue. My suggestion is to receive the payment on the invoice and leave that amount on the customer's account. True, it is not in deferred revenue (it is in a reduction in A/R) but at year-end, you can give that amount to your CPA and they can make the adjustment on your tax return. However, if you're an HOA that files Form 1120-H, your balance sheet is not part of your tax return anyways and the overpayment is not in sales.
