How to enter Customer Deposit for the Job which has no relation to his open invoices

[Reim]

Hi,

I need your help. I am running a small retail business with just a basic knowledge in accounting where I sell Ordinary disposable cups and Custom printed disposable Cups. For custom printed items I receive 50% advance payment since I have to pay the printer upfront for the printing costs. I will give you an example to make this clear:

( Note: All my customers pay me only at the end of each month and I am using Quickbooks for book keeping )

1). On January 1st I delivered the customer a bundle of normal disposable cups which is 1000 USD and invoiced the client. Client will pay only at the end of the month.

2). On January 2nd same customer required some customer printed items which is 2000 USD and I received 1000 USD in advance and this will take 2 months to deliver. I paid this 1000 USD to the printer as his advance.

The problem is when I send the monthly statements to the customer, because the total outstanding amount is Zero and customer pays nothing. Since the down payment of 1000 USD he made is for the sole purpose of custom printed items and I have to pay this 1000 USD to the printer, I need a way to account this separately without affecting the open invoices of the customer.

Can you tell me how this is normally accounted? help is really appreciated.

 

[ladyrider]

Sounds like you need an outside accounting service but anyway your purchases and sales have nothing to do with each other. They will only be important when you are trying to run a month end profit and loss statement BUT with that said your income for that month using the accrual basis will still show you sold the 2,000 to the customer and you purchased 1,000 to do the job. Since you have accounts receivable (customers paying on account) you need to keep your books as accrual basis vs a cash basis. If you change to cash basis then your profit and loss would only show what actual cash was in and out which would result in a 0 profit and thatsno' t right.

First off create an invoice to the customer for the full job: so they place an order for 4,000.00 and then they pay a deposit of 2,000.00 for half the job. Assuming you are using Quickbooks do RECEIVE PAYMENT of 2,000 and apply it to the customer invoice. Leaving you with an accounts receivable of 2,000 for that customer.

Then you buy and pay for the COGS (cost of goods sold) Write a check, do a bank transfer, ACH, debit card purchase whatever and you would Debit COGS - materials (or job purchases whatever) then credit the bank account (or credit card account depending on how you pay for it)

The statement to the customer will still show they still owe you the 2,000 no matter what you purchase for the job or no matter how long it takes you to deliver the finished product and get paid for the balance. When you deliver or ship the final product the customer pays the additional 2,000 they still owe and you apply it to their account and THEN their account would show a zero balance owed.

 

[Reim]

Thank you for informative reply. The problem is I can't invoice them till I deliver them the full products. What I did now is I created a service item "Down Payment" and invoiced the client with this item on the invoice for the amount he paid in advance. This item credits the advance payment of 1000 USD to Current Liability account titled " Customer Deposits". When I finally invoice the client for delivered Item I will debit the same amount to "Customer Deposits". Is this correct?