Documenting sales and payments may be tricky for amateur accountants due to several options that QBO gives you. The most often confused transaction types are invoices, sales receipts, and payments. Let’s look at the differences between these documents and when to use them.
Description: The sale took place, but wasn’t paid for.
An invoice is probably the most common document related to transactions between two businesses. In many countries, it is a default document for B2B transactions.
The main rule to pay attention to is that the seller issues an invoice in QBO after the sale but before the payment arrives. Thus, its main goal is to inform the customer about how and when to make the payment. Also, some businesses issue proforma invoices even earlier, that is before both the sale and the payment.
Invoices are recorded on the basis of the date they are issued. To ensure that the payment happens, an invoice typically includes a due date and payment terms if they’re agreed on.
When you do receive the payment, you need to use the “Receive Payment” form available from Sales >> New Transaction >> Payment. In this form, you need to make sure to select which invoice this payment belongs to. If there isn’t an invoice, you need to use the Sales Receipt option instead.
To make sure the payment refers to the correct invoice in QBO, you can either search for invoice numbers, or choose a customer to display their open invoices. After you complete the “Receive Payment” form, QBO will change the invoice status from “Open” to “Paid”.
Description: The payment happened at the time of the sale, or before.
Businesses often receive payments at the time of the transaction or earlier. In this situation, there wasn’t an invoice issued before the payment, so it was either a cash sale or a prepayment.
After receiving the payment, you need to issue a Sales Receipt. To put it simply, a Sales Receipt in QBO is an acknowledgement that the money owed for a product or a service is paid.
If the transaction happens at the same time as the payment, you don’t need to issue an invoice because the Sales Receipt is sufficient to record both, the sale and the payment. Otherwise, it may be a prepayment, which means that you also need to issue an invoice to acknowledge the fact that the transaction happened. Sometimes this invoice may be preceded by an estimate (pro forma invoice) that you can convert to an invoice in QBO.
Note: For recording prepayments, you need to use a separate account in your Chart of Accounts called, for example, “Prepayments” (this account may be present among the default QBO accounts).
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