Down Payments Received
Okay, now let us see a new topic, which is down payments received.
Thank you for reading this post, don't forget to subscribe!
As you know, down payment is actually a deposit which is given by a customer when placing the order, so let me just illustrate this with an example. Let’s say the invoice amount is $1000, but the customer pays a down payment of 200, then he’ll settle the balance of 800 later on, which means 1000 minus 200, so let us see how we can post a down payment of 200 against the invoice amount of 1000.
Just take note here, for some companies, the down payment cannot be posted to the default recon account. Our default account for customer is this. Let me just show you, default recon account for all the customers is trade debtors. Okay, you can also show from here, FD03, go to company code data. See, the default account is this, let me just copy here.
However, the accounting principle says, if the customer pays a down payment of 200, then the down payment amount shouldn’t be posted to this recon account, otherwise, we cannot differentiate the actual sales and the down payment amount. It will be lumped up under the default recon account, which is this. For example, the customer pays $200, credit customer and debit bank. However, journal postings for customer down payments is this, however, if we do this, then the 200 which is posted to customer account will be posted to this account here, default recon account. We don’t want this to happen because otherwise this total outstanding for the trade debtors account will be reduced accordingly, so we don’t want this to happen. For example, let’s say this default recon account has got a balance of 10,000, which means that if we post the down payment of 200 to the credit side of this recon account, then it will become 9,800 and we won’t know whether this is actually a customer down payment or normal payment, because any credit entries to the trade debtors account can also be a customer payment. Based on the credit and raise, we cannot really determine whether it’s a customer payment or down payment. So therefore, what the accounting principles suggest is that if the customer pays a down payment, then that amount should be stored in a different G/L account other than this. So we need to create a new G/L account to store the customer down payments. Let us see how to do this.
We need to create a G/L account first. I’m going to choose from the debtors account. Yeah, this is a debtors account, then I go for 2004 and create current assets. All these are already used, so I need to go to the next available number which would be 200007. I need to use this. Create balance sheet account, current assets, down payment receipt. Okay, current assets. Let me choose a current assets account. You can choose this. So this is going to be our down payment received account where the 200 will be stored without disturbing the recon account of this. Now, when the customer pays, let us go and post an entry document, go to others, down payment, under financial accounting, general ledger, account receivable, document entry, down payment. Choose this, down payment, enter down payment now. It will look like a normal invoice entry screen with some changes. Okay, for customer account, you need to enter 500001. For bank account, it’s a normal bank account. We have cash in bank, and the amount has to be entered here which is 200. Okay, now look at this, special G/L indicator. If I post the amount now, how will the system know that it should not use the default recon account, which is defined for this, which is 20003? The default recon account which is defined for that customer is this, how can I tell the system that the transaction amount of 200 should not be posted to the default recon account that is using this indicator? That’s why we need to use a indicator to say that this particular transaction should not be posted to a default recon account.
Alright, now we need to configure, create an indicator for this purpose. Let us go to IMG. You see this, this is under financial accounting, account receivable and payable, business transaction, down payment received, and this, define reconciliation accounts for customer down payments. Go here.
Now, all these special indicators are defined, so therefore you can see it here. For example, A is down payment, B is bill of exchanges, all are different. All of it are coming from here, C. Okay, now we need to click 1 for our down payment. You can use an indicator, which it does not exist here. Let’s use A, B, C, D, X. S is not here, so let use S, then we name it down payment received. Oh, it already exist. Almost all are existing. It’s just a one alphabet indicator, so I use 1, 2, 3, 4, 5, 6, 7,maybe I can use 7. Seven is not defined yet. Yep, it’s only one character for that. Okay. Now, you don’t have to enter anything here. Just go to accounts, you have to save it first, chart of accounts is Sun, enter. Just call up the recon account that we created just now, especially for down payment received, 200007, just put it here. The other way around. You must call the default recon account here. The default recon account for the customer is this, then here, we need to mention the alternative recon account, which is our special G/L account, specially defined to post the down payment received. This is how it should look. This something like a mapping table. We are telling the system that any postings which will route to 20003 account, which is a default recon account for this customer account should be routed to another special G/L account, which we have specially created for down payment purposes. When it says 7 here, when you save here, now you can use a special indicator, 7. The 7 will appear here. So when you say 7, down payment, then the system will know which destination G/L account to post the transaction to. Let’s check it now. Changes have been made. Go back. I’m going to put 7 here. Alright. Let me show you now. Press enter. Oh, it has not been defined as a recon account, the 20007. It’s not a big issue. Just go there, FS00. Come here, change it, and change to customers, because this is a special G/L account which is created specially for down payment received postings should be defined as a recon account for customers only then the system will accept it. We have done it. Go back, now put 7, then press enter now.
Okay, I think we have to go out and refresh, only then the effects will take place. Okay, now put customer account, specialty and indicator, 7, payment account, cash in bank, amount is 200, and press enter. Enter again. Alright, now you can go through, just put 200 again for the second screen. Now, you simulate. Before we simulate, you see this, even though we posted to this customer, let me just show you again, rightfully, this 200 should be posted to this account. This is a default recon account 20003, but it will be posted to this account instead. Let me just show you this. Alright, now let me create another one. What will happen is, see this picture here. We are posting something to customer 50001, which is supposed to be posted to default account, which is 20003, but because of the usage of the special GLDK7, it is being routed to alternate account, which is 20007. This is what’s happening if you are lost. Now let us simulate. Oh, this is still blue. We need to enter the due date. Just double click on it, and then, enter. Now it’s turned to black, so it’s good. All right, let’s simulate the G/L. Now at the entry level, 200 amount is still posted to customer B, which is 50001, but in the background, the posting will not go to the G/L account 20003, which is the default recon account.
Let me show you. Let me just simulate. It will route to 20007 because we have used a special G/L indicator of seven. If not because of a special G/L indicator, It will go to the default recon account, which is 20003. Go back here, do see this posting key, seven? Seven means the special indicator that we have used, so let us post this. Posted.
Now, if you look at the double-entry, what does it mean? What has happened now is that I need to open another one. Let me drop the double entry. Okay, do you see this? This is the posting that we have achieved. The customer account, the special G/L account, this is called a special G/L account, 20007 that we created has been credited, and the bank account has been debited. The default recon account which is this has got no entries.
Now, we have to post the invoice for 1000 and see how this can be offset against the down payment which is made. Alright, invoice, simulate. There should be no text, right? Sorry. Let’s remove the text. Okay, now it’s removed.
Now, this transaction will be posted to default recon account. Now, posting is done. This is the posting. Let us check what is the G/L account it is posted to. Double-click, and see this, the default account, let me just update this. Let me just enlarge this. Okay, this whole transaction is about down payment postings, and here is invoice posting. Let me show you how it looks like. Invoice posting will be something like this. Okay. Let me just enlarge it a bit. Height is 1000, so I get more area. Let me go down here, and I need one more account for sales. Sales account. This one is my sales account. Okay, I paste it here.
Alright. Now, once I do the invoice posting, that will be normal. 1000 will be debited. I put like this here., and 1000 will be credited here. Alright. this is normal. There’s nothing different from the normal postings. This is what we call invoice posting.
How are we going to offset this invoice posting against the 200? Because what the customer has to pay is only 800, he’s already paid the 200 as a down payment, so let’s see how we can do this. Go to incoming payment, choose the bank account, a balance of 800 to come, right? Choose the customer account. Customer B, amount is 800, right? Balance, first out of 1000, 200 is paid as down payment, so the balance of 800 to be collected. Process open items. Do you see this? This is the document. I clear off the cash discounts. The last document I created. Double click this, and I need to show you one more thing. Let me show you the bank account. 800 and open item is this. Just note this special G/L, now It’s empty, isn’t it? So when I process now, I can select this 1000, so there’s a balance of 200. 800 is supplied against 1000. Now, I need to look for my down payment, which I made earlier, and then, select it together so that I can offset this balance 200, but I can’t see the down payment here. The 200 is not displayed here. Do you know why? You need to do something. Go back here. You need to enter the special dual indicator so that you can see the transactions. 800. This is normal. G/L account of 50001. You see the special G/L indicator, this is where you have to mention the second down payment received. Click okay. Seven, or you can directly in. So what it means is that now he will show all the special G/L transactions also. Do you see the thick mark? This will show the open item standard open items I process you can see the 200 somewhere here. See here, this is the Special G/L transaction, the down payment that we made. So what I have to do here now, I clear this off first, I select this, this is the invoice I posted and I also select the down payment, so it becomes 0. Now that it has become 0, only then you can post it. The amount that I’m paying is only 800, but that is added up to this to become 1000, and offset against this 1000 here. That’s how it works. So now I simulate, I need to enter the due date, right? That’s why it’s in blue in color. Simulate again. Now it’s gone. Simulate. It’s displaying a warning message that says, “Enter”. Okay. All good. Cash in bank. I’ve posted 800 to cash in the bank, and this is the customer down payment. That is added up, so we will match against the 1000 to clear off the customer outstanding invoice. Is that clear?
Before I post, let me just show you the customer line items. ABL5N. Now, you cannot see the 200 here, let me just choose all items, also can, open items. You can see the invoice here, but the 200 is not displayed here because of the special G/L transaction. 200 is a down payment, right? In order to display that here, you have to choose this special G/L transaction. Then you can run it. Now you can see it here, and this column here, S, meaning Special G/L indicator, is showing 7 because we created this 200 using the special G/L of 7, remember? Alright. I just want to show you before I post. Now I’m going to post it. Now posted.
Let us refresh this to see what happens. See, the document 12 is gone. You need to select all, so you can see it. It has come down here. Where is 12? 1000 is here. Okay. The special G/L transaction will also come down here. These two because it’s settled on each other. This is how you settle. This is how you use the down payment made by the customer to offset against outstanding invoice. This column here shows special G/L.
What has happened now is, let me just illustrate here using this. When you make the payment, invoice payment. What will happen is, the bank account is debited. Let me enlarge the view first. Okay. Where is the bank account? Copy this. Bank account will be debited by 800, and this customer account will be credited by 800. Okay then, remember the down payment made, this account will be reversed out. I will show you how it is reversed out. This account will be reversed out by posting a debit entry here for 200 and this amount will be moved to here, offsetting entry is posted here, 200.
Now you see the picture of how all the accounts are cleared. The bank remains 800, but the total of the bank is, already we have posted 200, that is during the down payment posting. But during invoice payment, 800 is posted here, and this account is reversed, the balance is moved from here to here, so this plus this becomes 1000 and clearing of this.
Let me just show you the account. Go here, let me just show, this account, 2007, all items, see, 200. This 200 on the credit side. Initially, it was on the credit side, and this 200 is posted now, so the balance is zero. It is totally reversed up. This is the payment posting, invoice payment posting, and this one, this 200, it’s a down payment posting. Okay. You can zoom in and make sure it’s a down payment. Alright, this account is much better and go to here, there’s a down payment, right? This is a special G/L. Remember this document is posted during the down payment, when you zoom in, you just highlight this and press this, and this one is the payment, invoice payment. You press this is, the payment we made, 200, comes from here and from down payment, 800 comes from cash. Both offset this 1000.
Alright, so I have proven this, now let’s go and use this. Check this, 2003, how the postings look like. Oops, we have plenty of transactions here. Alright, then we have to look for our transaction. 1000. Here, this transaction is here. The invoice posting is here, and down payment posting of 200 should be one of these here. This one. Give me a second. Okay. Alright, I have a better idea. We put filter by posting date which is today, so that we don’t see a lot of transactions. The view will be limited to only the documents for today. See, now we can see very less documents.
These are the two documents that we need to look into. This is the original invoice amount, ending with 12, and this is the payment document we posted. Let me just prove it to you. Here, see, this plus this is 1,000, and these two is shown here on this side, here, 1000. It won’t show the breakdown of 800 and 200. It will show the summation only. Okay, this match against this, account 0. Okay. Alright, and the bank account. Let us check the bank account now.
Alright, see we have 800 and 200, let’s just ignore this 20, it’s because of the previous transaction. We have two transactions, 200 refers to this 200, the down payment, 200, and 800 that we received during the invoice payment posting. 800 plus 200 is 1000. That’s about it.