This guide will teach you how to manage deferred revenue using Materio's QuickBooks sync. Here's what we'll cover:
Collecting prepayments from customers
Holding those prepayments as liability while work is ongoing
Recognizing revenue and sales tax upon work completion
How Materio's QuickBooks sync ensures proper accounting treatment QBO-side
Note: This guide is not accounting or tax advice. Consult your accountant or tax advisor for personalized guidance.
Step 1: QuickBooks Account Mapping for Prepayment Liabilities
In Materio, navigate to your QuickBooks chart of accounts mapping.
Ensure you've mapped the "Retainers" and "Deposits" rows to whichever Liability account in QuickBooks you use to track customer prepayments.
Click "Update accounts" to save any new account mappings.
Step 2: Collect Prepayments from Clients
Note: In Materio, Retainer and Deposit documents defer revenue. Invoice documents recognize revenue. Therefore, to hold a prepayment as a liability, you must collect that prepayment using a Retainer or Deposit - never using an Invoice. Learn more in this help article.
Within a Materio project, navigate to the Finances / Invoicing tab.
Click + New
Choose "Retainer" to collect a lump-sum prepayment that can be spent towards any part of the project in the future.
Choose "Deposit" to collect a prepayment that you allocate towards specific items in your project scope.
Finish drafting the document then send it to the client for payment.
When the QuickBooks sync completes for your Retainer or Deposit, it will be held as a current liability in QuickBooks under the QuickBooks account you chose in Step 1.
Step 3: Complete the Work
Once the client has sent you their prepayment, your firm is now clear to complete whatever work the client has prepaid for. (This step typically takes weeks or months, during which time the client's prepayment will continue to be held as a Liability on your books).
Step 4: Recognize Revenue using a Final Invoice
Once the work is complete, you are ready to recognize revenue and sales tax.
Within a Materio project, navigate to the Finances / Invoicing tab.
Click + New
To recognize revenue, choose "Invoice" rather than "Retainer" or "Deposit."
Add the project scope you want to recognize revenue for onto your invoice.
If you previously collected a Retainer, click Apply payment / From retainer or credit to apply the retainer as payment to this invoice.
If you previously collected a Deposit, then Materio will automatically apply the deposit towards your invoice for any scope items with positive deposit balances.
When the QuickBooks sync completes for your invoice, it will:
Recognize the revenue and sales tax in QuickBooks with positive line items at the beginning of the QuickBooks invoice.
Spend down the liability previously held in QuickBooks towards this invoice with negative line items at the end of the QuickBooks invoice.
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