CNA A/R - Invoice: How to enter distribution properly to ensure the correct accounts are credited when payment deposit is submitted

How to enter distribution properly to ensure the correct accounts are credited when a payment deposit is submitted

When creating an invoice it is very important to list any initial fee line items first if you want the initial payments to be credited to the correct distribution accounts.

 

Receiving Payments is a two-step process:  Receive Payments and Submit Payment for Deposit

Step 1: Receive Payments

 

  1. Enter the payment amount
  2. When clicking Auto Apply, the software applies the payment to the oldest customer invoice first. 
  3. If you would prefer to select the invoice against which to apply the payment, mark the box to the right of the Balance.

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Step 2: Submit Payment for Deposit 

When you check the box to the left of the Accounts Receivable Payment, the deposit transaction is created in the General Ledger which debits Cash and credits the Income Accounts listed in the Invoice starting with the first one until it is fully paid, then moving to the next one. 

The following transaction was created when a $25 Registration Fee was paid and marked as a deposit (invoice distribution shown in the image below). 

In this example, since the Invoice lists the Registration Fee last, the first payment received will credit the income account associated with the Daycare Income rather than with the Registration Fee Income.

Conversely, when the initial fees are listed first on the invoice distribution, initial payments are credited to the correct distribution.

Once payment is applied to an invoice with the initial fees listed last on the invoice distribution, the only way to update the General Ledger to correct this is through a journal entry. However, if you do this after the initial payment is made to Debit the first distribution item (in this case Daycare) and Credit the last (in this case Registration Fee), you must remember to also journal the final invoice payment reversing this initial entry. This is because the final payment will still use the invoice distribution to determine which accounts to credit.

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