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TimWalt1999
January 14, 2022
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Unearned revenue and sales reports

  • January 14, 2022
  • 1 reply
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Hi 

 

I'm a newcomer to QBO and am trying to understand the logic of how sales reports and revenue accounts interact. Due to the nature of our business, we have quite a lot of upfront payments that need to be deferred and recognized as revenue in future years. We invoice our customers and QBO allows to post the payments directly to the unearned revenue account. However, the invoiced amount also appear as sales in standard sales reports...so we have quite a big discrepancy between sales reports and P&L income. Also, JEs we use to recognize revenue (from B/S to P&L) aren't reflected in sales reports. 

 

Does anyone have any practical tips on how to deal with these transactions so that I can avoid current manual efforts to create customer sales reports in line with our P&L income? Thanks!!

Best answer by TirzahC

I’m here to guide you through how to manage upfront deposits in QuickBooks, TimWalt1999.

 

You’ll want to ensure you’ve set up an account, item, and a trust liability account. The retainer or deposit is treated as a liability. So when you charge a customer for the services you perform for them, you can turn the retainer or deposit you previously received into credit on an invoice and accept it like a payment.

 

To be more familiar with managing retainers in QuickBooks Online (QBO): How to record a retainer or deposit. 

 

That's it. Don't hesitate to get back to me if there's anything you need. I'm always here to help you some more.

1 reply

JasroV
JasroV
January 14, 2022

Welcome to the QuickBooks family, Tim.

 

I'd be delighted to share with you some insights on how sales reports and revenue works in QuickBooks Online (QBO). 

 

First, you'll need to create a liability account and a retainer item to track your customers' upfront payments. I'll show you how.

 

  1. Go to the Gear icon and select Chart of Accounts.
  2. Click New.
  3. From the Account Type drop-down menu, select Other Current Liabilities.
  4. In the Detail Type drop-down menu, Trust Accounts - Liabilities.
  5. Enter a name for the account (ex. Trust Liabilities).
  6. Select an option from the When do you want to start tracking your finances from this account in QuickBooks? drop-down list.
  7. Click Save and close.

 

Then create a retainer item. You can refer to this article for the complete process: Record a retainer or deposit.

 

In regards to how reports work, you can toggle it to view as Cash and Accrual basis. On the Cash basis, it shows income if you have received cash and expenses if you have paid in cash. While in an Accrual basis, it shows income regardless of whether your customers have paid the invoice. Thus, you may see that the amount of the invoices appears in the sales report even though it's hasn't been paid yet. 

 

I've added this link that you can read for more details (though the article is for QuickBooks Desktop, the workflow also applies to QBO): Differentiate Cash and Accrual basis.

 

Furthermore, I'd also recommend working with your accountant for additional guidance. They'll be able to share with you some best practices in managing your accounts.
 
When everything is all set, you might want to check out this resource that can guide you in matching your accounts accurately: Reconcile an account in QuickBooks Online.

 

I'll be here if you need more help with upfront payments and reports in QBO. Please feel free to tag me in your reply and I'll get back to you as soon as possible. Keep safe!

 

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    TimWalt1999Author
    January 16, 2022

    Hi @JasroV 

     

    Thank you very much for the quick response! Seems like a solution I can use :-) 

     

    Do I understand correctly that when we invoice our customers for deposits/upfronts using the retainer item, the invoiced amount won't show up as sales? This wouldn't happen until step 5 "turning retainers into credits on invoices"? 

     

    Tim

    T
    TirzahCAnswer
    January 16, 2022

    I’m here to guide you through how to manage upfront deposits in QuickBooks, TimWalt1999.

     

    You’ll want to ensure you’ve set up an account, item, and a trust liability account. The retainer or deposit is treated as a liability. So when you charge a customer for the services you perform for them, you can turn the retainer or deposit you previously received into credit on an invoice and accept it like a payment.

     

    To be more familiar with managing retainers in QuickBooks Online (QBO): How to record a retainer or deposit. 

     

    That's it. Don't hesitate to get back to me if there's anything you need. I'm always here to help you some more.

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