>While converting a system for a client, I'm running into problems with the way they approach things. One is simply the age-old "we've always done it that way" problem. Something more specific is their desire to have an overpayment on an invoice make the invoice balance go negative, effectively making it an open credit that can later be applied against another invoice. So you have a situation where it's an invoice one day, a credit the next. One day you're getting a payment against it and the next you're using it as a payment to pay something else. To me, this is the wrong way to go about it. I have the system never letting a balance fall below zero and generating a credit invoice for the overpayment amount. Then the credit invoice can be used later to apply against another invoice. This causes some issues for them, though I'm going to address them. Anyone have any thoughts on these two appoaches?
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>Russell Campbell


Hi Russell

In the almost 40 years that I've been a CPA and 25 years that I've been designing and writing software, I've never seen an Accounts Receivable system that did not allow for credit balances. This could result from a number of different reasons, but the most common is the customer overpays an invoice or double pays an invoice. This is a rather common occurrence and should be designed into the A/R system.

When I design my A/R system, as I always allow for this kind of a situation in addition to a "payment on account" when you can't immediately identify what the payment is for, as well as "over and short" when a customer's payment does not EXACTLY match the invoices they are paying and the difference is not significant enough to warrant leaving an unpaid balance or refunding the difference to them. The "over and short" would also eliminate minor credit balances from mucking up the A/R file.

Certainly allowing the credit balance to be applied against unpaid invoices would be the normal way of dealing with credit balances. This would also be the situation for "paid on account" amounts.

If you have any other questions that I can answer for you, I'd be happy to respond.

Best, John Fatte', CPA
www.proware-cpa.com