when i receive a payment on account for an invoice in the next financial year,
I choose to allocate monies to Customer Prepayments( a Liabilities account) but it will not offer me the choice of which Invoice it is actually paying money towards so the customer account does not show this payment against any invoice and the customer statements do not show a payment either.
Only if I allocate money by using accounts receivable will it show customer name and choice of invoices to pay off.
How can I allocate the prepayment against the correct invoice.
It’s the Invoice not the payment that should be allocated with regards to a different financial year.
EG if the invoice is for a 2017 membership fee, then the Invoice goes to Memberships In Advance.
The payment received just settles the Invoice balance, the payment is received today not next year.
This way the customer account and the statement shows the payment
The only way Manager can correlate payments and sales invoices, whether pre- or post, is through Accounts receivable, because that is where the customer’s account actually is. Accounts receivable is a control account, made up of individual customer subaccounts. It is an asset account, so is not included in any sales income account and does not distort your income (assuming you are using accrual based accounting, which you should be if you are taking deposits against future work).
The sales invoice is what posts revenue to the income account, balanced by the account receivable. You should not raise the sales invoice this year, but next year. A request for a deposit, if necessary, can be handled with a sales quote, appropriately renamed. This has no financial impact. See these Guides:
https://forum.manager.io/t/customer-deposits-and-advances/7093
https://forum.manager.io/t/creating-sales-quotes/7238
While posting a deposit to your Customer prepayments account is not wrong from a financial perspective, it is unnecessary and/or creates more work. Eventually, you will have to transfer it to Accounts receivable by journal entry, or you will miss out on the ability to allocate to specific invoices and have all transactions appear on a Customer Statement. If you post the deposit to Accounts receivable, everything can be automatic. Until July 28, 2016, you couldn’t do this, because you could not post a deposit directly to Customer credits. Then Customer credits was combined with Accounts receivable, making separate liability accounts for deposits unnecessary.
thanks for the info buddy
thanks for this, and you answered my other question as to where my customer credits had gone.
that makes sense now Ta buddy
Hi @Tut, I have been reading various ideas concerning prepayment. I was requested to send a quote for a 12 month pest control service on 3 houses under the control of one company. It involved 2 general pest control, 2 timber pest inspections, for each property all 6 monthly, and 12 monthly rodent baiting for each property. They accepted the quote, and asked for one invoice for the total price once the first service had been done. The initial 3 treatments, 3 TPI and one rodent baiting was completed on 6/1/2017, and the FULL invoice is expected to be paid by EOM. Can you please advise how to enter this payment when received.
First, tell me where you find such customers. 
Most would demand monthly or quarterly invoices. So congratulations.
In this case, I believe you can consider their acceptance of the quote as a contract binding them for the full year of service, payable in advance. Some accountants might insist that you should handle payment for future portions of the work as a deposit. But in this case, it seems clear that both parties accept the obligation for the full year at the outset. Our friend @Brucanna often uses the example of newspaper subscriptions paid in advance in order to receive the product. This is similar. So I would be comfortable with the interpretation that the revenue has already been earned. I would convert the sales quote to an invoice and send it. I would enter receipts against that invoice directly, not as advances.
It might be good to obtain written confirmation of this arrangement in case it is questioned in an audit. But few tax auditors would complain about your entering income early. They are more likely to be concerned about postponed recognition of income.
Hi@Tut , thank you for your very quick and very well explained response. Strangely most of these quotes and prepayments are government contracts, where I have very clear instructions from the property managers to quote, they accept my quote and instruct me to invoice the 12 month total. I love them
Hi @Tut, My kind customers who paid me on an annual invoice for work not yet completed, have now created a problem. If I sell the business the new owner will have to complete the work not yet completed, so he would require payment. For example I invoiced the customer for jobs to be done in June and December, and on the same invoice jobs to be done monthly. The invoice read something like this. General pest control 2X $270.00 = $540.00 + Rodent control 12 x $30.00 = $360.00, total is $900.00. The invoice was paid in total in June 2019. If I sell my business on 30th October the new owner would be owed 1X $270.00 + 7 x $30.00 = $210.00 so a total of $480.00.
Could you please tell me where I should show this in my books, as a customer prepayment
Regrads norfolkislandam
This really isn’t a question about Manager, but a matter for negotiation on the price of the business. Normally, a buyer acquires all assets and liabilities of the business as they are. So no new transactions would be entered.
Hi @Tut thank you for your reply, and yes I totally agree with what you are saying regarding the sale of the business, but I guess what I am trying to do is minimise my tax, by putting the non earned amounts into a customer prepay account, so even though the invoice has been paid in full, the work has not been completed, I have asked our accountant for his advise.
I think your accountant will tell you there is no way to avoid taxes. If you sequester the advance payments so they do not show up as income, they will be assets that raise the price of the business. (Or they should. You would not, after all, give away other assets such as store fixtures or production machinery.) Then you would pay more tax on the amount you received for the business.
But, depending on your tax laws, having the income in one category versus another may be more advantageous. Asking your accountant is the best course.
Then the new owner would be owed by you and not the customer as you have already been paid.
So if the business is worth 10,000 and you have prepaid services then those prepaid services are deducted from the business selling price on settlement: 10,000 - 480 being 9,520 or you could have separate payments: 10,000 to you and 480 to them (via a trust account) as they completed the services.
Now in your accounts the 480 would be a reduction in sales, as they have been transferred.
You are not saying what type of tax. If your 480 included GST taxes, then the adjustment on settlement would be the pre-tax value of the uncompleted services - so 450, as the 30 has been paid to the tax authorities. If you are referring to income tax then “in your accounts the 480 (450) would be a reduction in sales” which eliminates the unearned income.
Hi @Brucanna, thank you for your reply, and yes referring to income tax, and as you point out a reduction in sales. What I have done is changed the initial invoices to for example 1 x $270 + 1 x $30 so $300.00.
When the payment for the 12 months I posted the one charge of $300.00 to this invoice and the balance to Pre-payment account. I then set up recurring invoices for the other $270.00 in 6 months, and 11 other monthly invoices for the $30.00. When the invoices become due, I simply pay them from the prepayment account. This has reduced my sales, and will only increase monthly until settlement. On settlement the balance in the pre paid account will go to the purchaser.
Hi @Brucanna , just a follow up, fortunately or unfortunately, even though we are part of Australia, we do not charge or have to pay gst, which I am not sure is a good thing,