Occasionally you may get a payment from a customer that is for more than they owe.  There are a couple of different ways you can handle it.

First let’s take the case of a customer overpaying by a negligible amount, such as 1 cent.  You have to account for it in order for you bank account to reconcile.  But it’s not worth the time and effort for you or the customer to record a credit.  So in this case, when you are recording the customer’s payment, check the Pay box by the invoice to pay it for the actual invoice amount, then click on the Apply To Revenues tab and record the overpayment amount.  You can put a note in the description field. Set the GL Account to something like Other Income.  If there is not a column for GL Account, click the Journal button at the top of the window and change the account there.  Finally, if the amount is large enough to trigger sales tax, you will need to change the Tax type to exempt, assuming your state allows that.

If the overpayment is for a significant amount and they don’t have any other open invoices, you will need to keep track of the credit balance.  In most cases, my recommended method for doing that is to manually enter the Amount Paid for the invoice so that it includes the overpayment.  The Amount Paid for the invoice will be larger than the Amount Due. This will cause the invoice to have a negative balance and show up on their account like a credit memo would.  Later you can apply the credit to another invoice or refund it to the customer.

If the total amount of overpayment credits is a significant part of your total accounts receivable, and you have to provide financial reports to someone outside your company, such as your bank, you may need to use a different method.  The reason is you owe that money to your customer which means it is a liability.  But the above method makes it a negative asset (accounts receivable) instead of a liability.  So instead of overpaying an invoice, you will pay the invoice for the actual amount due, then click on the Apply To Revenues tab, enter a description, set the GL account to a liability account such as Customer Down Payments, and put the overpayment in the Amount field.  Unless your state requires you to tax down payments, set the tax type to exempt.  Using this method, the overpayment will show in the liability account, but it will not show in the customer’s balance. So you will have to carefully keep track of what is in the liability account.  Your general ledger will more accurately show your financial position using this method, but from a practical point of view, it is much harder to keep track of your customer’s actual balance.  That is why I recommend this method only when you are required to use it.

Sage 50 2014 has just released and it has a new feature allowing you to enter the total receipt amount and it will auto-apply it to the open invoices.  If you enter an amount that is more than the total of the customer’s open invoices, when you save the transaction a window will open asking you if you want to have Sage 50 automatically create a separate prepayment transaction for the overpayment amount or if you want to “manually fix the difference on the receipt”.  I recommend you manually fix the difference on the receipt using one of the methods described above. If you let it enter the prepayment automatically you will end up with two receipt transactions that add up to the total payment amount instead of one receipt that matches the actual payment.  This is particularly significant if your print deposit tickets out of Sage 50 because the the number of checks would be incorrect.