Accounts receivable represents money that you’ve billed customers for, but they haven’t paid yet. Keeping track of who owes you money, and how much, is critical to staying in a financially healthy position. The main functions to record in QuickBooks are invoices, payments you receive, and deposits. You’re also able to use statements, estimates, and sales orders. These options are less commonly used but are worth knowing about, so I’ll include a blurb about them.
If you use the cash basis for accounting, your reports will show revenue/income when you receive the money. Using the accrual basis, revenue is reported when you send a bill to a customer. If your customers pay you at the time they buy your products or use your services, you don’t need to use accounts receivable. You can simply record a deposit for the money they pay. In these cases, the From Account field is the type of revenue you’re being paid for, e.g. consulting services or sales of a product. If a vendor is refunding you, use the expense account you originally used to pay them, and the deposit will reduce the expense line. As a side note, if you record revenue in a deposit, it won’t show up in the transaction listing on the customer’s record. This is fine in cases where you don’t need to track revenue by specific customers, e.g. retail stores. If you do want to have a record of revenue you’ve earned from a customer, you’ll need to use invoices and receive payments against them.
For customer that you’ll only bill for one thing, e.g. a single consulting project, or simple purchases, you only need to set up a customer. If you’ll be billing them for multiple things, e.g. multiple projects you work on for them, or you sell to a business with multiple locations, you can set up multiple jobs under the same customer, and bill revenue to each job separately. You can set up both in the Customer Center, using the New Customer and Job dropdown.
When you’re ready to bill a customer, enter an invoice. Enter the items you sold, quantity, rate (price per unit), and description. Sales tax can be added as a percentage of what you’re charging. Discounts can either be a flat rate, or a percentage. If you want to include a discount, make sure it’s set up as an item on the Item List. If you’re been tracking time or costs to bill to a customer, you can add those to the bill as well, then email or print and mail the bill.
When a customer pays you, use the Receive Payments window before posting the deposit. This will mark the bill as paid, and prevent you from recording the revenue twice (when you billed and when they paid). By default, QuickBooks will apply the payment to the oldest invoice, but you can manually choose which invoices or statements are being paid. After this, use Record Deposits once you’ve taken the money to the bank. You’ll get a popup asking if you’re depositing the payments you just received, and you can check off which payments are part of the deposit.
If you need to refund a customer or issue a credit memo, you can create this in the Customers menu or home screen. Put in the customer/job and what’s being returned, and save it. In the Available Credit window, you have 3 options – retain as an available credit, give a refund, or apply to an invoice. Use the first option if you’ll apply the credit to a future payment from the customer.
If you’re following up on bills a customer hasn’t paid, you can create a statement, and choose whether to cover a date range or all open invoices. You can create statement charges in place of regular invoices, and use the charges to populate statements, but these have some limitations. You also have the option to assess finance charges, such as if a customer is past due on one or more invoices. See how to set up finance charges and assess them to customers in this article.
Use estimates if you submit bids or proposals to customers before billing them. Make sure the Estimates feature is turned on – under the Edit menu, Preferences, Jobs & Estimates, Company Preferences, say yes for “Do you want to create estimates?” You can create an estimate from the home screen, select the customer and job, and fill in the relevant fields. If you want to include a discount, make sure it’s set up as an item on the Item List.
Sales Orders are less commonly used and only available if you use QuickBooks Desktop Premier or Enterprise. They represent a customer’s commitment to purchase your products or services. If you sell physical products, a sales order may represent an order that’s been placed but hasn’t shipped yet. You can turn the feature on under Edit menu – Preferences – Sales & Customers – Company Preferences – Enable Sales Orders. Sales orders can be created from scratch, or from an existing estimate. To do the latter, open the estimate, click Create Sales Order, edit information if you need to, and save it. Sales orders can also be turned into invoices when you’re ready to bill the customer, and multiple orders can be combined into a single invoice. You can also invoice for only part of a sales order, e.g. if a customer orders 150 parts but you only have 60 in stock and put 90 on back order.