QuickBooks 2024 – Prepayments (Customer Deposits)

Editor's Note: Intuit has just released QuickBooks Desktop 2024, including QuickBooks Enterprise (v24.0). Murph has evaluated pre-release versions of these products for months and spent hours communicating with Intuit personnel so we can help you learn about the new products. This is one in a series of individual product articles intended to provide additional content to what's included in Murph's QuickBooks 2024 Product Summary.

About QuickBooks 2024 'Customer Prepayments/Deposits'

The new Prepayments (Customer Deposits) feature is the most significant of the new ones in QuickBooks Desktop 2024. No matter what your business calls these transactions—"Customer Retainers," "Project Prepayments" or "Sales Deposits"—this long-needed feature is what we've been waiting for. 

Before this, QuickBooks Desktop users had only two choices for handling prepayments. The first was to accept a payment without an associated invoice, resulting in negative accounts receivable, which GAAP accounting standards say is totally improper.

The second was to use a complex workaround involving a two-sided item associated with another liability account you called Prepayments, Deposits or Retainers. This method required numerous transactions using the other liability item. Then, the steps had to be appropriately taken to offset the prepayment against a subsequent invoice.

This new feature allows Enterprise users to receive prepayments (Customer Deposits) on Sales Orders and track them (shown below).

These new Prepayments get credited to an other current liabilities account you designate for such payments and get debited to your undeposited funds account (seen in the Transaction Journal below).

But before I go further into how the feature works, I must tell you how you set it up.

Setting up Customer Prepayments

Before using the new Prepayments feature, you must activate it. If you already have Sales Orders enabled, you can start the set-up of Prepayments using a Sales Order in QuickBooks Enterprise.

• Log into the Company file in single-user mode as the Admin user
• From either the Home Page or the Customer menu, select Sales Order
• Proceed with entering the Customer and other fulfillment-related information
• Enter the appropriate Item details for the Sales Order
• When the sales order information is complete, Save the Sales Order without closing it

• Click the Receive Payments button on the Main tab of the Sales Order

• If you haven't previously turned on Prepayments, QuickBooks will prompt you to do so

• Click the blue Go to Preferences button
• QuickBooks will take you to the Payments preferences, then select the Company Preferences tab
• Begin enabling Prepayments by clicking the Prepayment settings button (shown below)

• QuickBooks will open the Customer Prepayments window; in Section 1 – Start using Prepayments, check the Turn on prepayments checkbox
• In Section 2 – Record Prepayments as Liability, click on the Liability account drop-down box and select a current liability account to record your prepayments

• If you don't have a liability account, add one

• Click the blue OK button on the Customer Prepayments window, then click the blue OK button on the Company Preferences window
• QuickBooks will then close all other windows to activate the new feature

Accepting a Prepayment (Customer Deposit)

Now that Prepayments is active, we can return to the Sales Order we created earlier to receive a prepayment. 

• Open the Sales Order you previously saved
• Once again, click the Receive Payments button

• The Customer Payment window will open with an Apply Prepayment advisory message

• After reading the message, click OK to continue
• Note that the Customer Payment window has a new look, there is both a prepayment flag and a checkbox indicating the payment is a Prepayment for a sales order

• Enter the Customer Payment information as you would for any other payment; this should include Customer, Payment Amount, Date, Reference (Check or Transaction #), and Payment Type

• After you have entered the Prepayment information and processed the payment, click Save and Close
• Returning to the Sales Order, observe that the prepayment amount is now reflected in a new Prepayment Amount field between the Total and Balance fields

• You can print the Sales Order, if needed, and it will also reflect the Prepayment

The Open Sales Orders by Customer report can be accessed from Reports > Sales > Open Sales Orders by Customer. 

The Open Prepayments by Customer report can be accessed from Reports > Customers & Receivables > Open Prepayments by Customer.

Apply Prepayments to Invoices from Sales Orders

When creating an Invoice from a Sales Order for which a Prepayment has been made, QuickBooks performs the essential background work to apply the Prepayment against the Invoice.

• Open the Sales Order and create an Invoice from the Sales Order as you normally would

• QuickBooks notifies you that the customer has available credits that can be applied

• Click Yes to proceed to the Apply Credits window that will reflect Prepayments in the upper third of the Credits tab

• Apply the Prepayment credit like any other credit toward the invoice, then click Done

From an accounting standpoint, QuickBooks creates a Journal Entry to debit your selected other current liabilities account and credit Accounts Receivable against the outstanding invoice.

Returning to the Sales Order from the Apply Payments window:

• QuickBooks displays a message advising, "Once you apply prepayments to the Invoice, you won't be able to make any changes"

• Click OK to proceed; the Prepayment will be applied to the Invoice; the result is visible in the highlighted box in the illustration below

• Verify that the Prepayment Applied and Balance Due amounts are correct
• Print, Email or prepare an Invoice PDF as you normally would for this customer

This new Prepayment feature will likely be the most appreciated in QuickBooks Enterprise v24. The new, streamlined workflow, despite how many steps I have taken to illustrate it, should significantly reduce the work needed to accept, track and correctly account for prepayments. 

I also believe most accountants will appreciate not dealing with negative accounts receivable resulting from improperly applied prepayments. That alone may give rise to their recommendation that clients upgrade to the new version.

This new feature is only available to Enterprise (Silver, Gold, Platinum and Diamond) and Enterprise Accountant users in the US and Canada.

One more thing...

Remember to read Insightful Accountant daily for another article in our 2024 QuickBooks Desktop series.

Also, please attend our September "QB Talks," scheduled for 2 p.m. (EST), Oct. 4, 2023 (the rescheduled date/time). Murph will bring you "A First Look at QuickBooks Desktop 2024." He will give you the Intuit hype regarding the new features and enhancements and his earnest opinion based on his testing experiences.

You can register HERE.

If you miss our webinar, you will find a recording on the Insightful Accountant home page.

Acknowledgments

I want to thank the product managers, team leaders, developers and Alpha/Beta test team members working behind the scenes, striving to deliver a new and better QuickBooks Desktop every year. It's far too easy to forget to thank these folks who "make QuickBooks a reality."

I especially appreciate Nipun Bhatia, Ninad Marathe, and Shobhit Sharma of the QuickBooks Desktop and Enterprise teams in India for assistance in affirming features and feature-related issues presented in this article. 

My special thanks go out to Intuit's Kim Amsbaugh, who always keeps me "in the loop."

Finally, to everyone involved at Intuit and the various QuickBooks teams, "Thank you."

 Nomenclature used herein:

^{QuickBooks 2024 refers to all versions of QuickBooks Desktop 2024 and QuickBooks Enterprise (v24). [This designation may also appear as QB24.]}

^{QuickBooks Desktop 2024 refers to all versions of QuickBooks Desktop Plus and QuickBooks Desktop Accountant for 2024. [This designation may also appear as QBD24.]}

^{QuickBooks Enterprise 2024 refers to all versions of QuickBooks Enterprise v24 and QuickBooks Enterprise Accountant for 2024. [This designation may also appear as QBES24.]}

^{Otherwise, products are referenced explicitly by individual product names.}

Disclosures

Materials within this feature, including graphic illustrations, were developed from various pre-release versions of QuickBooks 2024.  As such, the final product version you acquire may appear, act, or be somewhat different from that described or illustrated herein.

Portions of this feature have been adapted from Intuit QuickBooks Desktop 2024-related content, including in-product help resources. All such source materials were adapted by Insightful Accountant solely for educational purposes.

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