Manage open items in a balance sheet account

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Allow me to share details that can help with your questions about deferred income and prepayments. In QBO, you can record it as a deposit or retainer. I'd be glad to share all the steps with you.

First, create a liability account to track the deposit or prepayment you receive from your customers. This way, it will not affect income until you will use or post it as part of your sales. Here's how:

1. Open your Chart of Accounts and click New.
2. Select Liabilities, then select Other Current Liabilities in the drop-down list for Save account under.
3. Look for Other Current Liabilities in the Tax form section.
4. Enter a Name for the account (for example, Trust Liabilities) or accept the suggested name.
5. Click Save and Close.

Second, follow these steps on how to create a retainer item:

1. Go to the Gear or Settings ⚙ icon and select Products and services.
2. Click New.
3. From the Product/Service information panel, select Service.
4. Enter a name for the new product or service item (for example, Retainer).
5. Proceed to the drop-down list for Income account, then select the liability account you created in Step 1.
6. Click Save and close.

Third, a trust liability bank account where you can store or deposit the prepayment. Here's how:

1. Go back to your Chart of accounts and click New.
2. Select Bank, then select Bank Accounts in the drop-down list for Save account under.
3. Look for Trust account in the Tax form section.
4. Enter a Name for the account (for example, Trust account) or accept the suggested name.
5. Click Save and Close.

Fourth, create an invoice to receive the prepayment. Follow these steps on how to do it:

1. Click the + New button and select Invoice.
2. Select the Customer name from the dropdown list.
3. In the Product/Service column, select the Retainer or Deposit item you set up.
4. Enter the amount received for the retainer or deposit in the Rate or Amount column.
5. Click Save and close.

Lastly, convert the prepayment or deposits into credits on invoices. This decreases the amount in your liability account and applies the credit to your customer's invoice, turning it into income. Here's how:

1. Create an invoice for your customer that lists the services or goods you've provided.
2. On the last line of the invoice, in the Product/Service field, select the Retainer or Deposit item.
3. Enter the retainer Amount as a negative to subtract it from the invoice. You cannot enter a retainer amount greater than the invoice total. An invoice can have a zero total, but not a negative one.
4. Select Save and close.

Additional details about this process are discussed thoroughly in this article: Record a Retainer or Deposit.

However, I would still recommend reaching out to your accountant for additional advice on this matter. 

Allow me to share additional articles for more guidance when using QBO:

• Resolve Accounts Receivable or Accounts Payable Balances on a Cash Basis Balance Sheet in QuickBooks...
• Record and Make Bank Deposits in QuickBooks Online

Feel free to ask follow-up questions when managing customer payments. You can also visit us again any time you need more help with QuickBooks. We're always here to help.