QuickBooks Online: Understanding Sales Terms in QBO
QuickBooks uses sales related terms as generally understood by accountants. So they are fresh in your mind as you work with QBO, I will review them here:
Estimate: This document reflects the products and/or services, along with prices, that a business believes it will charge the recipient of the estimate. Usage of the term is now commonly used interchangeably with "quote" or "proposal." Technically, the three terms have different definitions, but business professional have been widely using them to mean the same thing. Estimates do not post to the General Ledger.
Invoice: This source document reflects a sales transaction when a customer will pay on account. The posting of an Invoice will increase Accounts Receivable and, usually, sales revenue. The corresponding journal entry may also reflect sales tax collected and owed.
Receipt of Payment: This reflects payment against an invoice. It will decrease Accounts Receivable and increase a bank account or, in the case of QuickBooks Online standard setup, Undeposited Funds.
Sales Receipt: Of course, many times products and/or services are not sold on account but rather are paid for at the time of sale. A Sales Receipt reflects this and thus has no effect on Accounts Receivable. It increases revenue and increases a bank account or, in the case of QuickBooks Online standard setup, Undeposited Funds.
Credit Memos: Sometimes, after the original invoice has been issued, the customer will return something or negotiate a lower price. This lowers, or "credits," Accounts Receivable meaning that the customer does not owe that amount any more. The seller will increase Sales Returns and Allowances to reflect on the seller's Income Statement.
Refund Receipts: What if the customer returns something or negotiates a lower price but the sale was not on account? A "Refund Receipt" reflects a refund of the payment and has no effect on Accounts Receivable. Refund Receipts are usually used if the customer to whom the seller is refunding the money no longer has any outstanding accounts receivable balance or, otherwise, a Credit Memo would have been issued.
Delayed Charges and Credits: These are really reminders to add charges or credits to future invoices. They do not post. At the time of this writing, they are only available in Essentials and Plus versions of QuickBooks Online.
It is important to understand the meaning of the terms that QuickBooks uses so that your system will be set up and used correctly. If you have any questions, please give us a call.