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Author Topic: Invoice or a Sales Receipt for deposits?  (Read 1111 times)

MichaelEzra

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Invoice or a Sales Receipt for deposits?
« on: March 11, 2018, 06:51:15 PM »

When receiving a deposit, what is a better practice for deposit paperwork and bookkeeping?

A. Send invoice to customer for the deposit.
    When job is complete send invoice for the rest.

B. Don't send invoice for the deposit (deposit discussed in estimate/proposal terms).
    When deposit is received send customer Sales Receipt for the deposit amount.
    When job is complete send invoice for the rest.


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Box Brownie

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Re: Invoice or a Sales Receipt for deposits?
« Reply #1 on: March 11, 2018, 08:05:04 PM »

When receiving a deposit, what is a better practice for deposit paperwork and bookkeeping?

A. Send invoice to customer for the deposit.
    When job is complete send invoice for the rest.

B. Don't send invoice for the deposit (deposit discussed in estimate/proposal terms).
    When deposit is received send customer Sales Receipt for the deposit amount.
    When job is complete send invoice for the rest.

I would have thought "A" an invoice showing the deposit paid and also the outstanding amount due within ( ) the terms pertaining to when the balance is due.  Once job complete the invoice is re-issued showing (if/as appropriate) that final payment is due.  Or subject to if you have been paid prior to such a secondary invoice then a closing invoice showing both deposit paid and balance paid i.e. nothing due.
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Farmer

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Re: Invoice or a Sales Receipt for deposits?
« Reply #2 on: March 11, 2018, 08:44:57 PM »

From an accounting perspective, a sale receipt and a copy of the order indicating the deposit amount.
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Phil Brown

douglevy

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Re: Invoice or a Sales Receipt for deposits?
« Reply #3 on: March 12, 2018, 08:53:36 AM »

Typically A for me...most clients need an invoice to issue a PO, and a PO to issue a check.

tcphoto1

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Re: Invoice or a Sales Receipt for deposits?
« Reply #4 on: March 12, 2018, 02:17:21 PM »

I will draft an estimate which may require a retainer, be due on shoot day or 30 days depending on the project. If a retainer is required it will noted on the final invoice, I try to keep paperwork to a minimum.
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PeterAit

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Re: Invoice or a Sales Receipt for deposits?
« Reply #5 on: March 12, 2018, 03:27:35 PM »

In general, any consistent system that lets you accurately keep track of things is OK. But the details depend on how you do your accounting. I use Quickbook, for example, and by generating an invoice for every amount due you have a record of amounts owed to you. Then when you receive a check you balance it against the corresponding invoice so you know the amount has been paid.
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MichaelEzra

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Re: Invoice or a Sales Receipt for deposits?
« Reply #6 on: March 14, 2018, 11:23:40 AM »

Thank you all for your input!
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bwalker

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Re: Invoice or a Sales Receipt for deposits?
« Reply #7 on: March 16, 2018, 06:05:07 AM »

WARNING:
To add confusion to this scenario there are different ways to handle payment receipts from your customer. There is a tax point of view and an accounting point of view. You need to discuss receipt of payments with a professional tax advisor so you don't get in hot water with the IRS.

Michael, there is no clear cut answer to your question as you haven't given the information needed. There are definitive accounting "rules" on how money is to be handled in a business.

For example: Are you on the Cash Basis or the Accrual method of accounting. What kind of invoice you generate isn't necessarily critical; how you handle the receipt of funds however IS critical. If you take money from a customer without delivering a service and/or a product you really have a liability, a business liability as you still need to fulfill the obligation of delivery. There may be a difference of opinion here but ideally you want to run with Accrual as this is the most accurate. There is a bedrock principle in accounting you need to match your expenses to your revenue. In other words, if you sold $1,000 in product to someone you need to make sure ALL expenses directly related to that revenue are subtracted from that revenue in order to arrive at a correct profit margin. If you do not do that your Profit & Loss Statement could easily be wrong for the given month due to money being received in one month and the expenses behind that money being paid in a different month. Knowing and controlling your margins is critical in running a business. Multiply that by a number of transactions in a given month and all of a sudden you have a real hodge podge going and you are unable to make intelligent decisions.

Once setup properly accrual is not complicated to use but in all likelihood you will need a professional to setup your system.

To answer your question a bit more directly: Presumably, your customer has a quote in hand already. I'm going to explain this from a Quickbooks point of view as I cannot tell you how other accounting systems handle the transaction. If you issue what is known as a Sales Order your customer will have a record of the order. Under an accrual system that sales order needs to hit what is known as a "liability" account. This ensures the sales order will not hit a revenue account. If you collect a $1,000 deposit on March 30th for example and you were not billed from your vendor until April 10th both your March and April P&L's would be totally wrong. Cash basis accounting would have that $1,000 show up a revenue.

What takes place in the background on all of this may be confusing to someone not familiar with accounting but the workflow on how to handle the transaction is pretty simple. The background details will take care of themselves when the proper workflow is used.

A fact of life with photographers is that most of them do not understand the basics of accounting and too often they're looking at numbers from a cash basis point of view. So the very people that need to comprehend their profit margins are denied that opportunity. In my opinion the less you know about accounting the more you need to stay away from cash basis. What is critical is your system is setup properly by a knowledgeable professional and you follow a pre-established workflow when doing your invoices. The steps within Quickbooks make that workflow exceptionally easy to do.

Hopefully this gives you food for thought. If you have further questions please feel free to ask.

Billy Walker
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bwalker

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Re: Invoice or a Sales Receipt for deposits?
« Reply #8 on: March 16, 2018, 06:12:43 AM »

@ Peter Ait

If you're generating invoices that implies you're showing revenue immediately. If you're not handling the expense side in the exact same month the revenue came in your Profit & Loss statement will be wrong. Are you not using Quickbooks to determine your profit margins?

Billy Walker
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MichaelEzra

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Re: Invoice or a Sales Receipt for deposits?
« Reply #9 on: March 16, 2018, 07:51:07 AM »

Hi Billy, thank you for such insight.

I am currently using QBP and cash basis, and the deposits are entered into the liability account.
In response to receiving the deposit, I am giving to the customer a payment receipt (a sales receipt).
When the job is complete and a full payment is due, I issue a full invoice, reflecting the prior payment.

Do you think this addresses it sufficiently?
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bwalker

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Re: Invoice or a Sales Receipt for deposits?
« Reply #10 on: March 16, 2018, 11:34:02 AM »

Hi Michael,

Although you need to ask the IRS for permission (I think) you are allowed to change your basis of accounting from Cash to Accrual. This will give you accurate P&L's. I've never used Cash basis in 35 years so I'm not sure how Quickbooks handles it. When Cash basis is used and you're selling inventory and you're not matching the timing of expenses your P&L's will automatically be incorrect if the Revenue and the Expense are hitting different time periods which is almost guaranteed to happen under Cash basis. At tax time you could choose to convert to Cash basis strictly for tax reporting purposes by making a few adjustments outside of Quickbooks. This will allow you to maintain Quickbooks under the Accrual method.

As to your question: This is dumb on my part but I have totally forgotten how Cash basis is handled when deposits are received. Entering the deposit into a liability account is correct from an accounting point of view; I just don't know how the IRS looks at that deposit under Cash basis. Are you generating the receipt from the "Receive Payments" icon within Quickbooks? That payment receipt turns Accounts Receivable into a negative number which is OK assuming you realize that and/or your tax preparer knows that as well and/or your producing a P&L or B/S for a financial institution and/or you never offer Open Accounts.. All the above "and/or's" can easily be accounted for if they do exist by providing the appropriate notations to whomever. In my eyes not a big deal but some folks may object.

What is absolutely critical is you have a proper matching of expense to revenue - without that taking place you cannot accuarately determine your margins.

Another oddity which Intuit has confirmed via a support call: deposit value will not show up on the invoice therefore the invoice is overstated. Not an issue within Quickbooks as long as the deposit is applied properly but an issue with the customer when they look at their invoice as it doesn't show an accurate balance due. So I cheat as follows: Directly underneath the Total, within the bottom margin, I hand write the words "Balance Due" and then I hand write whatever the balance is. Rather professional don't you think? :-)

My personal practice is to never give out an "Invoice" until it is time to do an Invoice. And, that means the sale is ready to be concluded.

Question: When you say "QBP" are you referring to Quickbooks Pro or Quickbooks Premier? Quickbooks Premier offers more sophistication with inventory than Pro. It allows for the building of "Assembly's" which is exactly what a frame, gatorboard, the image, the mat and whatever else may be involved in the wall portrait to use an example. The Assembly process will automatically relieve the inventory and create an accurate COGS number. Without that you resort to guessing, or possibly considerable manual work. The secret is taking the required time to properly setup Quickbooks. It does take some time to do right, all accounting packages do, but once setup you actually have accurate numbers.

Hi Billy, thank you for such insight.

I am currently using QBP and cash basis, and the deposits are entered into the liability account.
In response to receiving the deposit, I am giving to the customer a payment receipt (a sales receipt).
When the job is complete and a full payment is due, I issue a full invoice, reflecting the prior payment.

Do you think this addresses it sufficiently?
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