Improvement to payment and receipt forms

In double-entry accounting, the sum of debits must equal the sum of credits. You are correct that the excess or advance is debited to the cash account. Cash accounts are assets and are increased by debits. So the account balance goes up to match what happens at the bank: you have more money. The offsetting credit goes to Accounts receivable as a contra entry, that is, as an entry reversed from what normally goes into the account.

It would also be correct to instead credit a liability account named something like Customer credits. Some people like that approach better. In fact, until about a year ago, that’s what Manager did. But things were simplified so all transactions could go to a single customer subaccount and be processed the same way. By coincidence, there is another post on this subject on the forum today: Handling Advance Payments Better.

But what cannot happen is to do both as you suggest. That would result in an unbalanced entry.

That’s one of the shortcomings of cash basis accounting. If you are taking deposits, you need an income account for them. If you later earn the money, you would need to transfer to Accounts receivable by journal entry to pay off a sales invoice. At its core, Manager is an accrual basis accounting system, with optional cash basis reporting. But if you are going to use it that way, you need to set it up that way. In the end, it’s more work. That’s one reason most accountants dislike cash basis accounting.

In its regular operation, Manager does not show Accounts receivable under cash basis accounting. But if there are negative balances (customers have overpaid or made deposits), it will be shown. This is really a reminder that you are not accounting correctly for things with the choice you have made on basis.

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