2.SC.5.2 Unearned Income from Customers | Scribe

    2.SC.5.2 Unearned Income from Customers

    • 0 step
    • QuickBooksQuickBooks
    • Fast & Easy QBOFast & Easy QBO
    Start in the Sample company.
    To complete this exercise, you must be in the Sample company. From your QBOA account, click the Gear icon on the top right corner of the screen, then select Sample company.
    Note that you will be logged out of your current account. If you are sure, click "Continue" to confirm.
    Now, begin the exercise.
    Please double check and make sure you are working in a new version of the Sample company for this exercise.
    You've already learned the receive payment method. Now you'll go through the more correct unearned income method.

    Unearned Income Method

    Because it is the most correct (and GAAP compliant), the unearned income method is best used when there's outside reporting or a large number of deposits/retainers involved. It's also useful when the deposit will be used over multiple accounting periods, since it doesn't require a journal entry. With snow removal, there's usually snow removed in December and then in the following year, in January. So, in this scenario, the unearned deposit method works well.

    Setup for Unearned Income Method

    There are several steps required in order to set up to receive deposits using this method. First, the account settings need to be adjusted. Then, a liability account must be created in the Chart of Accounts. Finally, a service item is set up that is tied to the liability account.
    To use the unearned deposit method, you must turn off the feature in QBO that automatically applies credits to open invoices. Do that first.
    Click the "Gear icon"
    Click "Account and settings"
    Click "Advanced"
    Click anywhere in the "Automation" section to make the section editable
    Next to Automatically apply bill payments, click the "toggle" so it turns grey, indicating it is off
    Click "Save"
    Click "Done"
    Now, set up the liability account to track the customer deposits on the balance sheet. Liabilities are things that Craig owes; in this case, it represents work that Craig owes his customers.
    From the left navigation bar, hover over Transactions, then select "Chart of accounts"
    0 Selected
    This Scribe is in tip-top shape!Leave feedback if there are any issues with this Scribe