Skip to main content
P
Ptonjalken
March 31, 2021
Solved

How do I get back an HST payment from a cancelled invoice from a previous Quarter?

  • March 31, 2021
  • 2 replies
  • 0 views

Hello everyone

My business issues invoices ahead of service, sometimes up to 3 months ahead of time. So sometimes I am paying my HST a quarter ahead of schedule.


This is no problem, but when a customer backs out I may have an invoice where I already paid HST but am no longer going to be getting paid. I will be going into my 2nd quarter now, Q1 was easy as I could just void it but now that I will be paying my Q1 HST I want to make sure I am dealing with dead invoices properly.

 

How do I account for this in the current quarter (Q2) and get my HST credit from the Q1 invoice to apply against the current quarter? I read a bit about credit memos but I can't seem to figure it out fully.

Thank you

Best answer by Leith

Hi Ptonjalken

 

Mostly, this has to do with your invoicing process and something called the matching principle.  Even if you send invoices ahead of time, that isn't counted as revenue until the work or related expenses occur.  Is there a reason to send out invoices so early?  Do you require deposits up front on work? (there is another, better way to handle this).

 

Now that you find your self in this situation, you'll need to void the invoice and related taxes.  As you've indicated, a credit memo is the best way to do this.  From the menu, click the +New button, and under the Customers column, select Credit Memo.  Enter the value of the original invoice, marking it appropriately for tax - inclusive or exclusive, and selecting the correct tax code.

Once you've saved your credit memo, you should see the taxes show up as a credit on your tax report.  Don't forget to mark the invoice 'paid' or settled against the credit memo.

From the menu pick Invoicing and Invoices find the invoice, and select Receive Payment and you should be able to allocate the invoice and credit memo against one another.

 

Hope this helps!

2 replies

J
JamesM4
March 31, 2021

Hi Ptonjalken,

 

It's good that your business issues invoices ahead of time. I can see how important it is for you to account for this current quarter while adhering to the rules set by the Canada Revenue Agency. QuickBooks is a powerful program that makes it easy to put your financials into focus using our advanced features. 

 

Based on what you've described, it's important you're able to record your transactions the right way. I encourage you to reach out to an accounting professional for advice on how to best handle this situation. Doing this helps ensure your books are accurate. You can reach out to a QuickBooks certified accounting professional on our site using this link here. I'll also leave this question open in the Community so other members can chime in and share their advice. In the meantime, check out this helpful article with more info on how to: Create and apply credit memos or delayed credits in QuickBooks Online.

 

Feel free to ask questions below, I'm here to help.  

 

Leith
LeithAnswer
March 31, 2021

Hi Ptonjalken

 

Mostly, this has to do with your invoicing process and something called the matching principle.  Even if you send invoices ahead of time, that isn't counted as revenue until the work or related expenses occur.  Is there a reason to send out invoices so early?  Do you require deposits up front on work? (there is another, better way to handle this).

 

Now that you find your self in this situation, you'll need to void the invoice and related taxes.  As you've indicated, a credit memo is the best way to do this.  From the menu, click the +New button, and under the Customers column, select Credit Memo.  Enter the value of the original invoice, marking it appropriately for tax - inclusive or exclusive, and selecting the correct tax code.

Once you've saved your credit memo, you should see the taxes show up as a credit on your tax report.  Don't forget to mark the invoice 'paid' or settled against the credit memo.

From the menu pick Invoicing and Invoices find the invoice, and select Receive Payment and you should be able to allocate the invoice and credit memo against one another.

 

Hope this helps!

    P
    PtonjalkenAuthor
    March 31, 2021

    Thank you this sounds easy enough

     

    We do require deposits ahead of time, but I also like sending the invoice out ahead of time to allow people to pay by credit card on their own (and to remind them, I find quickbooks emails do not get junkmailed as easily as a regular email which is a huge plus to me). You mentioned an easier way to account for deposits? Would it still allow for credit card payments? Thanks for any insight here as well :)

    LeithG
    LeithG
    April 1, 2021

    Ok, cool! So two different bits then:

     

    1. Sending invoices early.

    Regardless of when you send the invoice, the invoice date should be reflective of when you want to record the revenue.  For example, if you want to recognize the revenue in April, but are sending the invoice in March, be sure to set the invoice date in April.  Then, even if you send the invoice early, the revenue is still reflected in the correct period, and you can simply void the invoice using the credit memo as we've discussed if need be.

     

    2. Deposits

    Deposits can be a little funky in QuickBooks, but there is a right way to record them so that you do not charge (and owe) HST/PST/GST on them until they become recognized as revenue.

    • Under your Invoicing -> Products and Services, create a new item titled Deposit, and link this to a balance sheet account for pre-payments.  This will be a liability account showing that a customer has paid you for goods/services not yet delivered.
    • Create your invoice for the deposit using this new Deposit item, but do not charge tax (HST, GST, PST) and issue the invoice to your customer.
    • At the same time as creating the Deposit invoice, create a Delayed Credit Memo -- +New -> Customers -> Delayed Credit
    • This credit reflects the deposit your customer is expecting to make to come off of the later/final invoice.
    • When issuing the invoice for the final work, you include all services and items you're billing for, and attach any of the Delayed credits you've created.  This has the effect of the final invoice collecting all taxes related to the job, as well as adjusting the invoice appropriately for the deposits the customer has made.

     

    Hope this helps!

      Terms & ConditionsAccessibility statement