Applying Excess Credits for One Job to Another in QuickBooks

Our client wrote to ask our help. He has a customer with three jobs, all of which are completed. Two of the jobs have balances due, but the third job has a substantial outstanding credit for items that were returned after the job was finished. He wants to use the credit on the third job to pay off all of the first job and part of the second job. He wants to have a logical "trail" to explain to the customer and to his accountant.

We found a way to accomplish this without changing the history of the original transactions that were applied to the three jobs. For this example, we used our customer named Contractor Larry, who had three jobs: Job01, Job02, Job03. These are the balances for each job.

That credit amount is sufficient to pay off Job01 in full, and apply the remaining credit balance to the open balance for Job02. We needed a place to "trade out" the credit from one job to another, so we created an account of the type Other Current Liability, which we named Customer Credits Exchange. The first step was to move the credit amount into the Customer Credits Exchange account (so that we could use it for the other jobs), without removing the credit's history from Job03. We accomplished that with a journal entry that debited $228.80 to Accounts Receivable and credited the same amount to the Customer Credits Exchange account. Entering the job in the Name column created a receivable (invoice) against which we could wash the outstanding credit.

We opened the Receive Payments window and selected Job03, to display the invoice created by the debit side of the journal entry. We left the Amount field at 0.00 and clicked the Discounts & Credits button to apply the existing credit to the new charge.

At this point, Job03 is at a zero balance, the job history has all the transactions that were applied, and the Customer Credits Exchange account has a credit balance of $228.80; we've moved the job credit to the balance sheet.

Next, we have to use $205.00 of the credit balance in the Customer Credits Exchange account to pay off Job01. In the Receive Payments transaction window, we selected Job01 to display the current balance due. Leaving the Amount field at 0.00, we clicked Discounts & Credits and created a discount against the invoice in the amount of $205.00. We used the Customer Credits Exchange account as the Discount Account.

Job01 now had a zero balance and $23.80 remained in the Customer Credits Exchange account, which we applied against the balance for Job02 as a discount (same steps as applying the discount to Job01). The Customer Credits Exchange account has been emptied, and the credit for Job03 has been applied to the other jobs.


For any questions, email us at albqbsolutions@gmail.com

Factoring in QuickBooks (Selling your Receivables)

Accounts Receivable is a Current Asset. One definition of an asset is something that has value and can be sold. So some companies, to be paid faster, sell their receivables. Sometimes this is referred to as “factoring.” Why? I don’t know. Be aware that “factoring” has another meaning that has nothing to do with Accounts Receivables.

Selling your receivables is a form of financing: we receive a percentage of our accounts receivable from the factoring company and we pay interest in the form of “factoring service fees.” We benefit by receiving cash sooner than we would otherwise. The factoring company benefits by investing in our receivables and receiving a return on that investment.

Be aware that this is just one way to set up your vendors and accounts for factoring. There are other ways to do it.

Set Up

Set up the buyer of your receivables (your bank, a factoring company, an investor) as a Vendor in the Vendor Center. You will need this vendor to record interest paid and additional expenses.

Set up an account of type Bank, as a contra account to A/R. You will use this account to receive payments from the Factoring Company. (See example below)

Set up an account, either Expense or Other Expense called “Factoring Service Fees.”

Example:

1.     You are the bookkeeper for Larry’s Landscaping. Your company did $1,000 of landscaping services for John Smith. Because Larry’s Landscaping needs cash immediately, you will invoice John Smith for $1,000 and then sell the receivable to the ABC Finance Company for $950. John Smith will write his check to the ABC Finance Company for $1,000.

2.     Enter an invoice to John Smith for $1,000.00 in landscaping services. In the memo, include instructions that the check is to be written to the ABC Finance Company.

3. Larry’s Landscaping receives a check for $950 from ABC Finance. Enter a Journal Entry:

1. a. Debit Cash for $950.00
2. b. Debit Factoring Service Fees for $50.00
3. c. Credit the A/R Contra Account for $1,000:
3. 4.  Enter a Receive Payment:
1. a. Bank account is the A/R Contra Account.
2. b. Customer Name is John Smith.
3. c. Payment amount is $1,000
4. d. Apply the $1,000 payment to the $1,000 Invoice.
5. e. In the memo, include that the check is from ABC Finance Company.
6. f. Click Save & Close.

4. Notes

   1.   In some cases, your customer will send the payment to your company, in which case, you must send the payment to the factoring company immediately.
   2.   You may be able to direct your customer to create a two payee check, i.e., both your company name and the factoring company name are included in “Pay to the order of” and either company may cash the check.
   3.   Use a Bill/Bill Payment to record any additional expenses from the factoring company.