Overpayment Examples

Sometimes clients pay more money then they owe. If a client overpays his or her account, you can manage the overpayment by applying the amount to an Overpayment account.

To do this, set up a new account number (in the 200 range, liabilities), called Overpayments in the Chart of Accounts Info Center.

Scenario 1

The client is invoiced for the correct amount, but pays too much. For example, if the invoice is for $100.00 and the client pays 125.00. In this scenario, complete the following steps:

  1. Enter a cash receipt with the correct amount ($100.00) to accounts receivable, and the amount overpaid ($25.00) to the Overpayments Account (this is a two-line entry). You do not need to enter a project number.
  2. Enter a cash disbursement, specifying the Overpayments Account number to refund the client $25.00. You do not need to enter a project number. This step tracks the cash flow in the Cash Journal.

Scenario 2

The client is invoiced for too much and pays that higher amount. For example, the client is invoiced for $200.00 when he owes $150.00, and he pays $200.00. In this scenario, complete the following steps:

  1. Enter a negative invoice for the amount that was overbilled ($50.00), using the same original invoice number. This step reduces billings and revenue for the client.
  2. Enter a cash receipt with the amount that should have been billed ($150.00) to accounts receivable, and the amount that was overpaid ($50.00) to the Overpayments Account. You do not need to enter a project or invoice number.
  3. Enter a cash disbursement, specifying the Overpayments Account to refund the client $50.00. This step tracks the cash flow in the Cash Journal.

Scenario 3

The client is invoiced for the correct amount but overpays. In this scenario, complete the following steps:

  1. In Cash Receipts, post the portion to be refunded to a clearing account (typically this would be a 200 level liability account).
  2. Process an Accounts Payable voucher coded to the same liability account in step 1 above. You may need to add the client as a new vendor.
  3. Process an Accounts Payable payment to your vendor/client as you would normally when paying vendors.