QuickBooks applies a customer payment to an invoice with multiple line items by applying the proportion of the pre-tax subtotal paid to each individual line item and applying the remainder to sales tax on the invoice.
If an invoice is paid in full, this obviously results in every individual line item and the applicable sales tax marked as paid in full.
If the invoice is only partially paid, individual line items on the invoice will be partially paid in the proportion that the total payment bears to the pre-tax subtotal.
Let’s review an example using the sample data for Castle Rock Construction from QuickBooks 2009.
As of 12/4/2012, customer Teschner (an example name only) has 2 invoices outstanding: invoice # 1064 dated 10/5/2012 for $760 (the balance remaining) and invoice # 1085 dated 11/28/2012 for $8305.95. On 12/5/2012, Teschner makes a payment of $5000 on check # 56321. A portion of this payment, $760, is applied to the older invoice, # 1064, paying that invoice in full. That leaves $4240 (i. e., $5000 – $760) to partially pay invoice # 1085.
Invoice # 1085 contains 8 line items with a pre-tax subtotal of $7920 and sales tax of $385.95, for a total of $8305.95. To determine how QuickBooks applies the partial payment of $4240 to the line items on this invoice, compute the proportion of the payment to be applied ($4240) to the pre-tax subtotal ($7920), or 0.510477429 ($4240/$7920).
Next, multiply this ratio by the pre-tax subtotal of each line item on the invoice. The first line item has a subtotal of $600. Therefore, the amount paid on this line item is $306.28, or 0.510477429 X $600. If we continue this process for each line item on the invoice and sum the amounts paid, that total will be $4042.98. Since we started with a total of $4240 to apply to this invoice, the remainder of $197.02 (or $4240 – $4042.98) is applied to sales tax.
By creating a cash basis Custom Transaction Detail Report, we can see exactly how QuickBooks applied the payment to an invoice. We’ll use the date parameters and the Filters on the Modify Report… button to highlight the exact application of the original payment of $5000. Remember, a portion of this amount, $760, was applied to an older invoice. This appears as the second line on the report. The amounts in the debit column correspond to the exact application of the check. For invoice # 1085, the invoice with multiple line items that was partially paid with this check, the amounts in the debit column represent the payment applied to each line item on the invoice.