# Cash application: matching payments to invoices

> Matching Northwind's receipts to its invoices: a short pay, a lump sum with no remittance, and a card payment that arrives net of the processor's fee.

Source: https://lopifi.com/learn/cash-application-explained
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How do I match customer payments to invoices, including short pays and Stripe payouts?** Matching Northwind's receipts to its invoices: a short pay, a lump sum with no remittance, and a card payment that arrives net of the processor's fee.

Money arriving isn't the end of an invoice. [Cash application](https://lopifi.com/md/glossary/application) is matching each receipt to the invoices it pays, and it's where receivables go wrong. The [remittance advice](https://lopifi.com/md/glossary/remittance-advice), the payer's note of what the payment covers, is the first thing to read. Northwind's fourth quarter threw up the four cases that cover most of it.

## A short pay: Alder deducts two damaged units

On October 14 Alder paid $7,800 against the $8,000 left on INV-1001, with a remittance note: less $200 for two damaged units. That's a [short pay](https://lopifi.com/md/glossary/short-pay), and it needs a disposition. Northwind checked, agreed, and issued a [credit note](https://lopifi.com/md/glossary/credit-note) for $200, which closed the invoice. Had it disagreed, the $200 would stay open and disputed. The credit goes to 4100 Sales returns and allowances, a contra-revenue account Northwind adds to its chart.

## A lump sum with no remittance

On November 30 Ridgeway Supply sent $5,000 and nothing else. Until it's matched, it's [unapplied cash](https://lopifi.com/md/glossary/unapplied-cash): it reduces what Ridgeway owes, it is never revenue, and it isn't yet attached to an invoice. The subset finder tries every combination of Ridgeway's open invoices and finds one that adds up exactly: INV-1006 and INV-1007. Northwind applied it the next morning and confirmed it with Ridgeway.

**Exercise — Apply a lump sum that came with no remittance.** On November 30, 5,000.00 arrives from Ridgeway Supply with no remittance advice. These are Northwind's open invoices that day. Type the amount to apply against each invoice it pays. A payment only settles the payer's own invoices, and anything you can't match stays unapplied. Type it in the workbook at https://lopifi.com/playground.

1. **Who paid?.** Name the payer. A payment only settles that customer's invoices.
2. **Read the remittance.** Apply exactly what it lists. With none, propose matches and confirm them.
3. **Dispose of any difference.** A short pay is a dispute, a credit note or a write-off, with a reason and an approver.
4. **Park the rest.** Leave anything unmatched as unapplied cash. Never post it to revenue.
5. **Gross up fees.** A processor's fee is an expense, a bank's wire fee is a bank charge. Neither is a short pay.

Applying a receipt.

In this lesson: the third case, a card payment that reaches the bank net of the processor's fee, has its own page below. It's the case most startups get wrong, and the one [Form 1099-K](https://lopifi.com/md/learn/form-1099-k-explained) is reconciled against.

## Pages in this lesson

- [Card payments and processor payouts](https://lopifi.com/md/learn/cash-application-explained/card-payments-and-processor-payouts) — 6 min. How do I record a Stripe payout that arrives net of fees?

## Where this lesson's rules come from

- [ASC 606-10-32-6](https://asc.fasb.org/606/tableOfContent) — Discounts, credits and price concessions are variable consideration (codification)

## Read further

- https://lopifi.com/md/journal-entries/short-payment
- https://lopifi.com/md/journal-entries/unapplied-cash
- https://lopifi.com/md/journal-entries/customer-refund
- https://lopifi.com/md/startups/invoicing-and-reconciling-card-and-ach-payments
- https://lopifi.com/md/tools/subset
- https://lopifi.com/md/tools/match
- https://lopifi.com/md/docs/domain/05-order-to-cash
- https://lopifi.com/md/docs/domain/07-cash-and-treasury

- **Track:** [Accounts receivable](https://lopifi.com/md/learn/ar)
- **Lesson:** Lesson 6 of 9 — 9 min
- **Terms taught:** [Application](https://lopifi.com/md/glossary/application), [Unapplied cash](https://lopifi.com/md/glossary/unapplied-cash), [Remittance advice](https://lopifi.com/md/glossary/remittance-advice), [Short pay](https://lopifi.com/md/glossary/short-pay), [Credit note](https://lopifi.com/md/glossary/credit-note)
- **Previous:** [Collections and the dunning cadence, AR · Lesson 5](https://lopifi.com/md/learn/how-to-collect-unpaid-invoices)
- **Next:** [Card payments and processor payouts](https://lopifi.com/md/learn/cash-application-explained/card-payments-and-processor-payouts)
- **The course:** https://lopifi.com/md/learn