February Fri, 2017
Set up and Track Prepaid Multiple Session Sales in QuickBooks
Workflow Solution: Set up and track prepaid multiple session sales in QuickBooks
Many service-based businesses sell multi-session packages to their customers, examples could be a massage therapist, personal trainer, chiropractor or even a sports complex. In these cases, the business owner needs to know how many sessions have been used by the customer and how many are still available to be used. You can set up and track these types of transactions in QBO and even automate the future transactions so that your financial statements are accurate. This method works well for an accrual basis business, meaning that the revenue isn’t recorded until the session is used by the customer. It will not reflect the correct revenue on a cash basis.
For this demonstration, we’ll be setting up a 6 session package for a massage therapist client. Each 60 minute massage costs $75, but you can buy 6 sessions for $375, or $62.50 each.
Step 1 Create the accounts: The first thing we’ll need to do is make sure that we have the appropriate accounts set up on our Chart of Accounts. For this method to work, we’ll need an income account and a liability account to track the unearned income.
Gear icon > Chart of Accounts > New
Liability Account (unearned revenue)
Step 2 Create the service items: Next we’ll set up the service items that we’ll use in this workflow. We’ll need to set up three items;
Gear icon > Products and Services > New
Service item that is used to record revenue, this item should mapped to the income account created in step 1. This item can also be used when the business sells an individual massage.
Service item that is used when our customer redeems a prepaid session. This item is mapped to the liability account we created in step 1. Make sure you use the discounted price!
Bundle item to use when we sell the package to the customer. This will use the item we created that is mapped to the liability account “Session – 60 Minute Massage” in the above example. The price of the bundle item is the sum of the prices of the components.
Tip: Don’t check the box “Display bundle components when printing or sending transactions, the customer doesn’t need to see the component parts.
Step 1: Recording the sale of the package: Create an invoice or sales receipt to sell the package to the customer. Use the Bundle item on the invoice and record the other required details about the transaction. This will credit the Unearned Revenue account. Save the transaction.
Quick Create > Sales Receipt or Invoice
Click More and Transaction journal at the bottom of the Sales Receipt screen to view the journal entry QuickBooks makes when we save the transaction.
Step 2: Create Delayed Charges for each of 6 sessions. Create a delayed charge for each of the six sessions using both the liability service item and the revenue service item. The next amount of the delayed charge will be zero. Keep in mind that Delayed Charges are non-posting transactions and will not be reflected on the general ledger until they are added to an invoice.
Tip: After you save the first delayed charge, click More > Copy on the bottom of the Delayed Charge screen to create the remaining five transactions.
Step 3: Create an invoice when the customer redeems a session. When the customer redeems a session, create an invoice and add the delayed charge to the invoice from the drawer. This will create a zero net invoice and create the entry to debit the unearned liability account and credit revenue.
Click More > Transaction journal to view the entry behind the transaction.
TRACKING AND REPORTING
You can create a customized report to show all un-used package sessions by customer. This report should tie out to the balance in the Unearned Revenue account as of the report date.
Step 1: Customize an Unbilled Charges report
- Reports > All Reports > Review Sales > Unbilled Charges
- Click Customize
- Filter by Product/Service > Choose the Service item mapped to the Unearned Revenue account, in this example “Prepaid Sessions:Session – 60 Minute Massage”
Rename the report to something meaningful to you and/or your client and click Save customizations to add the report to My Custom Reports in the Report Center
This new report should agree to the balance in the Unearned Revenue account on the Trial Balance.
Watch the video!