>>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
>
>Yeah, but you left it kind of vague. You do have to have the ability to deal with short pay, over pay, payments on account, and even payments within a cash tolerance (which to me means, they short paid it, but they were so close that you just write off the difference - I have one client whose cash tolerance is $10, for instance). What you didn't mention is the exact way you handle it. In my case, I do not let the balance on the original invoice go negative - meaning that the invoice they are paying does not become a credit. It is paid to zero and a separate credit invoice is created for the overpayment. That credit invoice can then be applied against any other invoice or refunded. Is that what you'd expect?

Actually, you're pretty close.

Let's assume that there are 10 invoices unpaid and in your A/R file. They add up to $ 100. For simplicity, let's say they are $ 10 each. Let's also assume that the customer submits a payment for $ 110; accidentally paying for an invoice that had previously been paid. There are two options when processing their payment of $ 110. You can either apply them to the 10 invoices and then put the extra $ 10 in the "over and short" account or you can "apply it on-account". As an amount paid "on-account", I would assign it a new invoice number (typically, I use an invoice number sequence that specifically identifies the invoice as paid on-account).

If the amount is applied to the "over and short" account, any accumulation in this account either becomes income or expense depending on the resulting balance at the end of the year. The supervisor of the A/R department obviously should review any amounts included in the "over and short" account each day. We actually generate an "over and short" report for them to review.

In answer to your question, yes, we generate a new invoice for any over-payments and treat these as "paid on account" since we can't specifically identify what the payment was for. Once this is determined, you can apply these against current or future invoices.

I think, from the sounds of it, you're handling things in the correct way.