Sales and Customers (Income)
What this domain tests
The revenue cycle: customers, items, estimates, invoices, sales receipts, receive payment, credit memos, refund receipts, delayed charges, recurring templates, and sales tax.
Core concepts
Know which transaction creates a receivable (invoice) and which records cash immediately (sales receipt). Know where money sits between collection and deposit: the Undeposited Funds asset account versus a direct deposit to a bank account. Payment terms drive due dates and therefore the A/R aging report.
Estimates convert to invoices only while open; progress invoicing lets you bill a percentage of an estimate. Delayed charges accumulate billable work that you later pull onto an invoice. Credit memos reduce a customer balance; refund receipts return money. Discounts can be applied at line level or invoice level, and sales tax may be automated or manual.
Traps
- Using a sales receipt for a customer who pays later, which understates A/R and overstates cash.
- Recording a customer retainer as income instead of a liability or Undeposited Funds.
- Confusing a credit memo (reduces A/R) with a refund receipt (returns cash).
- Deleting reconciled transactions instead of voiding them.
- Assuming that changing an item income account reclassifies past sales; it does not.
Worked example: invoice, tax, payment
Invoice 10 units at 100 dollars with 8 percent sales tax, total 1,080. The customer pays by cheque. Record the invoice, then Receive Payment into Undeposited Funds, then make a Bank Deposit. If you had recorded a Sales Receipt instead, the invoice would remain open at 1,080 and A/R would be overstated.
Rule of thumb: money owed equals Accounts Receivable; money in hand but not yet banked equals Undeposited Funds; never both for one sale.