Do you really know how to apply a credit memo, credit or refund for a customer?

Credit memos, credits and refunds can be confusing, so here is some information that will help explain the differences.  Sometimes, the wrong type of transaction is used.  If that is the case, you may need to delete the transaction and re-enter.

What's the difference between a credit memo, credit and a refund?

1.    A credit memo is a posting transaction which can be applied to a customer's invoice as a payment or reduction.

2.    A delayed credit is a non-posting transaction that you can include later on a customer's invoice.

3.    A refund is a posting transaction which is used when reimbursing a customer money.

This means that:

• Credit memos are used to offset an existing customer balance.
• Delayed Credits can be included only on an invoice.
• Delayed Credits don't affect a customer balance until they are included on a saved invoice.
• Refunds are used to show money given back to a customer to refund for services the customer is not happy with, to offset a credit balance, merchandise or service not received, or an overpayment.

1.    Entering a credit memo will affect your customer's balance, but may not affect a customer's invoice, until you make that decision.

2.    Entering a delayed credit will allow you to apply it as a line item on your customer's next invoice.

3.    Refunds given depending on the situation may or may not affect your customer's balance.

• Type 1: Refund for goods or services that didn't satisfy the customer. (Does not affect customer balance - accounts receivable (a/r), only the bank balance)
   Example: A customer already paid for an item, and is returning it for a full or partial refund.
• This option will provide a  Refund Receipt  to record reimbursements to customers via cash, check/cheque, or credit card. ( Select the product/service you are refunding, and the dollar amount of the refund.)
• Type 2: Pay the customer their outstanding credit balance. (Affects customer balance - a/r)
  Example: A customer has store credit, that they would like to have it paid out/redeemed for cash.
• This option will allow you to provide your customer a refund check/cheque in order to offset any open credits they would like paid out.
• Type 3: Refund for a prepaid order the customer hasn't received.  (Affects customer balance - a/r)
  Example: A customer prepaid an order which has been cancelled, and you need to refund the payment.
• This option is used when a client makes a down payment or prepayment and cancels the order before receiving the goods or services and no invoice or sales receipt was created. The option will lead you directly to entering in a check/cheque.
   
• Type 4: Refund the customer for paying you to much. (Affects customer balance - a/r)
  Example: A customer over-paid on an invoice, and you need to return the excess money.
• This option will allow you to provide a refund when a customer overpays and you want to give the customer money back (cash or a check/cheque) for the amount overpaid.

We hope you found this primer on credit memos, credits and refunds helpful.   

At Stenson Bookkeeping Simplified we provide bookkeeping training and best practices that make your company and staff the skills to be significantly more effective.  Email, text or phone  John L Mottram, at john@stensonfs.com or 214-543-1855 or go to our website at www.stensonfs.com. We are ready to help you.

Same sales bookkeeping questions every month? That’s insanity and you know what that means!

It may be time to adopt a new Best Practice – Posting Sales to the General Ledger

At STENSON Bookkeeping Simplified we hear that one of the biggest headaches for many bookkeeping departments is when confidence in the financial records starts to erode…especially in sales reporting!

It often starts with…”those sales can’t be right, you must have missed something. I know we had more sales last month than that!”

What happens next?

You take time out of your day, which you can’t spare, and jump in and look for some factor in the monthly sales transactions that might prove or disprove the rather negative assertion that came your way.

This takes a lot of time out of everybody’s schedule which is OK if there are missing sales but it’s a giant waste of time if it turns out sales postings are correct.

In many cases, your investigations show no sales missing. However, you still sense that your investigation isn’t fully accepted.  The person that asked the question only reluctantly accepts your analysis. This is the third month in a row that this question has come up! Can you see the insanity?

The person that asked the question is looking at your financial reports he’s reminded of his concern….those sales are just too low!  The feeling that the books are understating sales never really goes away.

Here’s the problem

There are just too many things going on in a single posting of monthly sales that it is impossible to settle on a single characteristic that can correlate it to something that explain how sales are performing.

There are just too many reasons that can explain the sales posting.

It could be

-a real drop in units shipped/delivered,

-it could be less working days in the month,

-it could be customer credits, refunds, discounts, return of material

-or that dreaded catch-all customer mix, product mix.

The sales cycle may not be daily, weekly or even monthly; there may be prepayments and even deferred revenue to consider.  Comparing daily, weekly or even monthly sales values may not help.

There are no standard reports that are prepared to keep the company informed of sales activity during the month on a regular basis, daily, weekly and business owners. 

Only reviewing sales days or even weeks after the end of the month when memories are failing when the focus of the company’s personnel has shifted to the issues of today.

Here’s the solution.

The problem can often be resolved by adopting a BEST PRACTICE FOR POSTING SALES.

Here it is:

1.     Distinguish sales transactions between Separate Standard Sales Postings from Non-Standard Postings.

 Standard Sales Posting must be ONLY the unadjusted amount billed for products shipped or services provided as reported in an operational customer order sub-system. By the way… once this sub ledger is approved by operational staff it does not change.

 2.  Non-Standard Posting must be posted to separate sub-accounts by type:

i)     Customer Credits/Refunds

ii)    Customer Prepayments

iii)   Deferred Revenue

iv)   Discounts

v)    Raw of Material

vi)   Other/Miscellaneous

3.    Prepare separate sales journals for Standard Sales Postings and each type of Non Standard transaction.

4.    Make sure journals are approved as soon after the close for the accounting month as possible.

5.    Make sure that the monthly financial reports are not the first time key managers see monthly sales postings.

6.    Before you issue the monthly financial reports, correlate each type of sales posting transactions to a previous month or some other characteristic to show how that type is performing.

7.    Make corrections as needed.

At STENSON Bookkeeping Simplified we can provide your organization with the skills needed in today’s increasingly hectic bookkeeping environment to perform at its peak.   Use our Best Practice SOPs. Phone, text or email John L Mottram at 214-543-1855 for more details.

Stuck with a negative in your QuickBooks Balance Sheet and stumped?

The Cash Basis Balance Sheet (CBBS) should not show Accounts Receivable (A/R) or Accounts Payable (A/P) balances because these accounts track open (unpaid) invoices and unpaid bills. Many companies use A/R and A/P accounts and report on the cash basis. QuickBooks was not designed to be used in this way and reporting anomalies result. The only way to assure that cash basis reports have no anomalies is to use only transactions that do not affect A/R or A/P.

Be aware that every QuickBooks transaction has one source account and one or more target accounts. You can view the posted accounts in any transaction by running the Transaction Journal report. The first line of the Transaction Journal Report shows the source account.

All subsequent lines in the transaction show the target accounts, they include:

              i.        An invoice with an item recording retainage to another current asset account.

             ii.        A payment from a customer not linked to an invoice.

            iii.        A payment linked to an invoice dated in the future if the report date is before the invoice date.

            iv.        A credit memo to a customer not linked to an invoice or a refund check.

             v.        A deposit recorded to the A/R account but not linked to a payment or an invoice.

            vi.        A journal entry crediting A/R as the source account and a target is a balance sheet account.

           vii.        A journal entry crediting A/R as a target account (e.g., transferring a credit to another job).

To solve the problem and remove the negative balance:

1.    Identify root cause of transaction and use the following:

a.    Open Invoices Report

b.    Unpaid Bills Report

c.    Customer Transaction Details Report

d.    Vendor Transaction Details Report

2.    Manually fix the root cause transaction:

This may include one or more of the following:

a.    Link transactions in the Receive Payment window (A/R).

b.    Link transactions in the Pay Bills window (A/P).

c.    Temporarily delete the transactions you identify as problems:

                              i.        Memorize the open transactions and then delete them.

                            ii.        Print your cash basis reports.

                           iii.        Reenter the transactions from the memorized transactions list.

d.    Edit your journal entries (JEs):

                              i.        Separate the A/P and A/R portions of journal entries that combine several transactions involving B/S accounts, into separate JEs.

                            ii.        Move the A/R portion to the first line (source) of the JE. Those JEs that are offset to an income or expense account will drop off the report. The JEs that are offset to a balance sheet account will remain on the report.

3.    Make preventative changes to your procedures.

We at Stenson Bookkeeping Simplified are ready to help at the end of telephone (214-543-1855), a text or an email (jlmottram@stensonfs.com).

A WHITE PAPER - USING A 3RD PARTY REMOTE OPERATIONS CENTER TO PERFORM BOOKKEEPING AND OTHER ADMINISTRATION SERVICES.

Why use a 3^rd Party Remote Operations Center?

To reduce the cost of bookkeeping and other administration service costs.

Do you save money when you outsource bookkeeping?

Yes, both staffing costs and the cost of your time.  

We share these savings with our clients. 

Our staff is career minded staff, managed by staff with accounting degrees and certifications with standard operating procedures using the latest in best accounting practices. We provide training for our staff and continuously monitor their performance.

This means we can achieve any bookkeeping or administrative task with less hours and fewer errors and less rework that can be achieved in an unsupervised or general office environment.

How much money do you save when you outsource bookkeeping and support services?

Our experience shows you save 25% in direct staffing costs and as much as 50% of supervisory cost that includes the business owners’ time.

What if I only need 4 or 5 hours of support each week?

We are able to provide support of as little of 2 hours of work a week.

Is my information protected?

All of systems are password protected, virus and malware protected and fully backed-up off premises.

All our staff are employees and located in company leased premises.

How do I access information when I need it?

24/7 access to real-time updates with a combination of  PC, Laptop Notebook or mobile device as well as personal connection with  your designated accountant or back-up buddy employee for the maximum of uninterrupted access to your data.

How much does outsourcing cost?

Between 1% and 1 ½% of revenues.

How does it work?

Instead of having staff at your office you have our staff at our office for coverage that is easy to access and doesn’t recognize vacations, personal days, arriving late, lunch hours or coffee breaks.

Can I keep my CPA?

Yes, you certainly can. In fact we fully expect that the precision of our work will ensure you have tax ready financial reports that will reduce your current CPA fees.