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 health position. The main functions to record in QuickBooks are invoices, payments you receive, sales receipts, and deposits. You’ll also be able to use statements and estimates. 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 reports 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 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, or use sales receipts.
For customers that you only bill for one thing, e.g. a single consulting project, or simple purchases, you only need to set up one 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 sub-customers, and bill revenue to each job separately. You can set up both by going to the Sales menu on the left side of the screen, going to the Customer window, and clicking on the New Customer button. If it’s a sub-customer, click the “Is sub-customer” box and select who the parent customer is. When you’re ready to send bills for your work, the “Bill this customer” option will prepare invoices independently for each sub-customer, and the “Bill with parent” option will make one invoice for the parent customer, bringing in everything that was billed to the sub-customers.
If you’re going to use invoices or sales receipts, you’ll need to use what QuickBooks Online calls Products and Services. These correlate to things you sell to customers, and each is associated with a revenue account on your profit and loss statement. To set up or manage products and services, click on the Gear menu at the top of the screen and click on Products and Services. Click New to set one up, or click on Edit in the list below if you want to update an existing item, and fill in the information you’re asked for. The Income Account is the type of revenue that will increase when you bill this to a customer. You can also use products and services in the Accounts Payable function, so you’ll see additional fields for expenses transactions. If you only use these items for Accounts Receivable, you can leave the other parts blank.
When you’re ready to bill a customer, enter an invoice. Go to the Sales menu and the Invoice screen, and click the New Invoice button, or go to the Customer screen, open a customer record, click New Transaction and select Invoice, and fill in all the fields. Product/Service is the item you set up in the previous paragraph, and revenue will be recorded when you save the invoice. Quantity is how many you sold, and rate is the dollar amount for each unit of quantity. QuickBooks will multiply quantity and rate to get the amount. If you’ve been tracking time worked or other costs to bill to a customer, you’ll be able to add those to the invoice, then email or print and mail the bill.
When a customer pays an invoice, you need to record a payment against it. Select the invoices in the Invoices screen, or from the customer’s record in the Customer screen, and click Receive Payment. From the customer’s record, you can also click New Transaction – Payment and select which invoice is being paid. This is helpful if a customer is paying for multiple invoices with a single check. Using the Receive Payment function will mark the invoices as paid, and prevent you from recording revenue twice (when you billed and when they paid). After this, record a deposit. In the deposit screen, you can select payments you’ve received; check the box on the left side for each payment that’s being deposited.
If a customer pays you for something that you didn’t previously invoice them for, such as an unexpected sale, or if your customers pay at the time of service, you can use a sales receipt. You can select this from the dropdown menu you get from the “+” menu at the top of the screen, or from a customer’s record, click the New Transaction button and select Receipt. You’ll fill in the same information as you do when you’re recording an invoice, but you don’t need to receive a payment against it. After you post the sales receipt, you’ll need to add it to a deposit to close the loop.
If you need to refund a customer or issue a credit memo, you can do this from the “+” menu, or from the customer’s record, using New Transaction – Credit Memo. A credit memo asks for the same information as an invoice, and you’ll apply it to an invoice by using the Receive Payment window. This will select the credit memo automatically, and you can choose which invoice to apply it to. If you’re refunding a customer, e.g. for an overpayment, go to the “+” menu and select Check. Where you would normally put the vendor, put the customer instead, and fill in the rest of the fields normally. For Category, put Accounts Receivable.
If you’re following up on bills a customer hasn’t paid, you can create a statement. From a customer’s record, click New Transaction – Statement. The statement date is when you’re sending it to the customer, and the start and end dates are the range of time covered by it – invoices created in this date range will be included on the statement. You’ll have 3 options for the type of statement to make.
- Balance Forward: This will have one line showing the balance of all unpaid invoices as of the start date, then list all transactions between the start and end dates.
- Open Item: This will show all unpaid invoices as of the statement date. If an invoice has been partially paid, the statement will show both the original amount, and the amount that’s not yet paid.
- Transaction Statement: This will show the amount invoiced and received, for invoices sent between the start and end dates you put in. It will not show invoices before the start date, or payments made against them, even if they haven’t been fully paid yet.
Use Estimates if you submit bids or proposals to customers before billing them, or before starting work. You can open the Estimate window from the “+” menu dropdown, or from a customer’s record using New Transaction – Estimate. It asks for the same information as an invoice. When you’re ready to bill the customer, open the customer’s record, and click Create Invoice for that estimate. If you start a new invoice, you can also select any open Estimates for the customer you’re billing.