QuickBooks Online Tip: Misapplied Payments and Writing-Off Balances

Fixing Misapplied Payments

Mistakes can happen!

If you have multiple invoices for the same amount for different customers, payments can accidentally be applied to the wrong customers.

The more open invoices there are, the greater the chance of applying a payment to the wrong invoice, customer, or both.

Sometimes, the payment amount was accidentally modified, leading to discrepancies in the open balance. In other cases, a payment may not be linked to any invoice.

Misapplied Payments

When a payment is received and applied to the wrong invoice or customer and has not been matched to a deposit, it's a quick and easy fix. Open the payment that is incorrectly applied and edit.

1. Open the Receive Payment screen (New > Receive Payment).
2. Click on the clock icon to the left of the words Receive Payment and select the payment to edit.
   
   
3. If the wrong customer name was chosen, select the one in the Customer box (a couple of messages will pop up to verify you are aware of how your change could affect credits and payments).
4. Update the payment information and account, if necessary, and select the correct invoice.
5. Choose save and close.
6. The payment is now applied to the correct invoice, and the original invoice that was chosen is reverted to its original balance.

If the wrong payment has been matched to a deposit already added from the Banking screen, follow this process:

1. Open the Bank Deposit screen (New > Bank Deposit).
2. Click on the clock icon to the left of the words Bank Deposit and select the deposit to edit.
   
3. Unselect the incorrect payment and select the correct payment. If the customer is the wrong one, choose the correct customer name and invoice.
4. The selected payment total must match the original bank deposit total.
5. Choose save and close.
   

Incorrect Amounts

If a payment amount is incorrectly entered, the process is to simply edit the payment.

However, if the payment has been deposited and reconciled, the deposit must be corrected. Here's how to fix if that's the case:

1. Remove the deposit from the bank register and take note if it has the R mark (meaning reconciled)
2. Edit the payment and redeposit it,
3. Make sure that the reconciled status has been returned.

Unapplied Payments

Depending on what account was used when receiving payment in QuickBooks Online, unapplied payments appear on the balance sheet report as undeposited funds or in the bank register as an uncleared transaction.

Either way, the payment has not been applied to an invoice or the amount is an available credit.

If there is an open invoice balance, apply the payment and select the invoice to which it applies. If there is no invoice, one needs to be created.

Writing-Off Balances

If a customer underpays an invoice by a small amount, you can either request the additional money or, because it is a small amount and would cost more resources to collect, choose to write off the balance.

The same can be said if they overpay if there is an agreement between you and your customer. The process is simple and is another way to keep clean customer balances.

Edit The Invoice

This is the simplest way to zero those small balances in QuickBooks Online. Open the invoice and add a line item using the same product/service originally used, or create a new item for write-off purposes.

If writing off an underpayment, enter the amount as negative; if it is an overpayment, record a positive amount.

Journal Entry

This option is commonly used in QuickBooks Desktop but also works with QuickBooks Online.

1. Open the Journal Entry screen (New > Journal Entry).
2. Enter the date and journal number.
3. Enter the account Accounts Receivable and add the amount as a Debit for overpayment or Credit for underpayment.
4. Add a description and enter the Customer name.
5. Select an offset income or other income account in the next row.
6. Choose save and close.
7. Create a $0 payment receipt (New > Receive Payment) to apply the journal entry to the invoice balance.

Viewing the Customer Balance or the A/R Aging report also lists transactions that need attention. Whenever applicable, we recommend recording a transaction in QuickBooks the same way it originally occurred.

When in doubt, it is still best to seek advice from your accountant, especially for unusual scenarios where a new account is needed.