How to I exclude advance deposits from being counted as "sales"?

Recording the deposit as a liability, essentially a loan from your customer, does not include it in "sales" any more than obtaining an operating loan from a bank is a sale.

Yes, in order for your customer to pay through QB you issue an invoice. But this invoice should only reflect the liability account and nothing more. Once you invoice again for actual service you create a credit memo to apply the in hand deposit to the sale

From what I've seen, it is included in "sales" if it is linked to an invoice or sales receipt. So, if I create an invoice for the client to pay a $100 deposit in January and they submit that deposit in January, and then in March I create an invoice for $300 of work ($100 of which is paid from that deposit and $200 of which is a balance due), the "sales" are $100 in January and $200 in March, whereas they should be $0 in January and $300 in March.

Hello, AL13. 

Thank you for the additional explanation of your issue. Let's make sure you've added the deposit to the correct bank account and also check the date in the Make Deposit window to make sure you used the correct date and not some date later. 

If the date and account are both correct. You may want to consider rebuilding and verifying your data in case there's any damage. The Verify Data utility identifies any potential data damage issues, while the Rebuild Data utility repairs data in your company file.  

If the program is in multi-user mode, you need to change to single user mode (Go to File -> Switch to Single User Mode). It is very important that you have to create a backup copy of your company file before running Verify and Rebuild Data.  

Verify Data: 

1. Press the File menu. 
2. Choose Utilities from the drop-down option.  
3. Select Verify Data. 
4. Tap Ok to continue.  

Note: If the verify process is successful, you are done. In case it fails due to some problem, QuickBooks will notify you to run Rebuild data.

Rebuild Data:

1. Click the File tab at the top. 
2. Select Utilities from the drop-down option. 
3. Choose Rebuild Data. 
4. Click Ok on Rebuild has completed.     

As always, you can contact our QuickBooks Support team if you need assistance with the steps. They'll be able to pull up your account in a secure environment and help you navigate using one of their tools.  

Feel free to let me know if you have other questions about recording your payments. I'm always here to help. Have a great day!

I don't think this pertains to my question. I don't believe this is really a bug or malfunction. It's more a question of how I should best record this information (or perhaps it's just a feature that is lacking). Also, I'm asking about an advance/retainer deposit that the client makes to the business.

Hello again, @AL13.

Allow me to join the thread and provide information on how you can handle upfront deposits in QuickBooks Desktop.

As mentioned by @john-pero, upfront deposits or retainers are liabilities, not an income. Thus, you'll need first to set up a current liability account for it.

Here's how:

1. Go to the Lists menu at the top. 
2. Choose Chart of Accounts. 
3. In the Chart of Accounts window, right-click and select New from the pop-up menu.
4. Pick Other Current Liability as the account Type.
5. Enter a name for the account (for example, Upfront Deposit) in the Name field.
6. Hit Ok.

Then, create an item to record the upfront deposit or retainers. 

1. Go to the Lists menu at the top. 
2. Choose Item List.
3. In the Item List window, right-click and select New from the pop-up menu.
4. From the Type drop-down menu, pick the purpose of the deposits you collect.
5. Select Service if you collect upfront deposits for services, or Other Charge if you collect upfront deposits for products.
6. Enter a name for the item (for example Upfront Deposit) in the Item Name/Number field.
7. Pick the Upfront Deposit liability account you created from the Account drop-down list.
8. Hit Ok.

After that, you can use the item to record upfront deposits or retainers you receive. Here's how:

1. Go to the Customers menu at the top.
2. Choose Enter Sales Receipts.
3. From the Customer:Job drop-down list, select the customer or job.
4. Select the account into which to deposit the funds in the Deposit To field if it appears. If this field does not appear, the funds are identified as Undeposited Funds and can be deposited at a later point.
5. Pick the Payment method.
6. Enter the necessary information.
7. In the Detail section, select the Upfront Deposit item you created from the Item drop-down list.
8. Enter the amount of the deposit or retainer in the Amount field
9. Hit Save and Close.

From there, the upfront deposits or retainers are recorded as a liability. 

Once done, create an invoice for the product or service. Then. apply upfront deposits or retainers to invoices. 

For more information about this process, I'd recommend browsing this article: Manage upfront deposits or retainers.

Here's also an article you can read more about the AR workflows in QuickBooks Desktop: Get started with customer transaction workflows in QuickBooks Desktop.

Let me know if there's anything else you need. I'm always around to help you out. Have a great day.

I've been having this problem for years.  When I run my sales tax report, the security deposit shows in the sales column under non-taxable sales.  This confuses my bookkeeper as it is combined with non-taxable rents.  It incorrectly ties the liability funds received to the income report for the sales tax to file. So when she fills out the sales tax return, the income is increased by the security deposit, and it is not income at all.  Since you must create your invoice from your "ITEMS" list, and the items can only be service, other charge or non-inventory part, it always counts as income.  Yes, my item is tied to my main account of the Security Deposit Liability account, but it doesn't solve my sales tax liability report.

Hi there, @Security deposits and sales tax.

Thanks for following along with the thread and sharing your concerns with us here in the Community. 

I wanted to check if have you tried the suggested steps shared by my colleague Mirriam above? If so, and those steps aren't working for you, I recommend contacting our Technical Support Team. This way, one of agents can review your account in a secure environment and investigate this matter further. 

You can use the link I've included below to connect with an agent. 

• QuickBooks Desktop Support

Please don't hesitate to reach out anytime. Take care!

Given that retainers are a liability, then for as long as they are correctly characterized as a liability, they are not income to your business for income tax or sales tax purposes. They are not really even "sales", but instead a precursor to sales, rather like taking a down payment or "deposit" (not a bank deposit, but a deposit on account) for an order you are not yet ready to deliver. You might intend to order the product from a supplier or manufacture it at some later date, for example.

I can think of two ways to record retainers which will exclude them from sales reports and sales tax reports.

1) Record the retainers on invoices using an item that links to a liability account, as described in this thread.  However, instead of dating the retainer invoice with a current date, post date into the future far enough so it will stay off your sales reports until you go back and change it when you start to deliver on the sale. Record the money received as a Payment with a current date and apply it to the invoice. Later, when you actually deliver on the sale, edit the invoice, remove the retainer item, and add the appropriate sales items.

The issue I see with this method, if it matters to you, is that the payment will reduce your current AR account balance but the invoice, while dated in the future, will be invisible to your balance sheet and so you will not see the corresponding increase to the AR and liability accounts.

2) Record the payment received as you would if you were receiving a payment against an AR invoice, but don't create an invoice for the retainer and don't apply the payment to anything. This will reduce your AR account balance and - when you deposit it - increase your cash balance. Later, when you have something to bill the customer for, create an invoice and then edit the payment and apply it to the invoice. 

Optionally, so you can see the total of these retainer payments on your balance sheet, create a second/special AR account just for these unapplied payments. Use it when first receiving the payments. (An account field will automatically appear at the top of the payment form when you have more than one AR account.) When you do this, your balance sheet will show the full AR balance for your actual outstanding invoices and a negative/contra balance for the special account. Later, when applying a payment, change the AR account on the payment to your standard AR account and apply it to the invoice recorded there.

The "issue" with this method that I've heard in the past, which I don't really think is an issue, is that you'll have unapplied payments - payments for nothing at all. Some people think this is somehow bad. Notably, though, this works fine in QuickBooks (it does not care) and I think the accounting is just as it should be for a retainer or other unearned money received that is refundable.  Such money belongs only on the balance sheet, and not on sales reports or your Profit & Loss reports.  Sure, normally it's seen as a liability, but a contra-asset account, always with a negative balance, has the same effect on the balance sheet.

Did you find any solution to this problem? I've also been dealing with the same problem for years. Please let me know if you had any luck.

Thanks,

Vugar

I just customized my sales tax liability report to filter out the deposit item from the report.

It does though.  We did just as was recommended & the upfront deposits are showing up on our Sales Tax Reports as NonTaxable sales.  How do you fix that?

Almost 3 years since your question, but I've found an answer that works in Quick Books Online. I have not tested it in the Desktop version.

My conjecture was that using an invoice was causing Quickbooks to classify the transaction under "Sales". So the first step was to use journal entries -- first between A/P and a liability account "Customer Advance Payments"; then, when the customer pays, between A/P and a bank account. Unfortunately, this still resulted in the advance payment showing up in "Sales".

So then I looked at the journal entries to see if anything could be causing them to be considered "Sales". Sure enough, I had put "Exempt (Sales)" in the Sales Tax field. When I deleted this (the "Sales Tax" field is now empty) and hit "Save", the transaction magically disappeared from "Sales".

When you use a Sales Invoice in QBO, the Sales Tax field cannot be left blank. So using journal entries is the only workaround for this bug in QBO. It may be different in Desktop.

Hello,

10 mos ago I followed your instructions as per your thread. Everything has been good until yesterday. I went to pay my sales tax for July, ran all of my reports and now all of a sudden I have a negative balance for my sales tax that is due. I've reviewed alll my reports, everything is as it should be. Why is my sales tax liability showing as a negative?

I have read a few other suggestions, which creates a ton of confusion. One person showed the deposit sales rec entered with tax. But when the credit memo was created to apply the deposit to the invoice, it was without tax.

We appreciate you posting your query here in the Community forum, @CSM-T. We've got you covered, and let's work this out so you can complete your tasks in QuickBooks.

To provide you with more effective assistance, could you kindly provide me with additional information regarding your specific situation? Can you explain the steps you followed to set up the item? Additionally, could you describe how you recorded the transactions and set up the account?

Please provide any additional information you think might be relevant. This way, we can give you the most accurate resolution to your query.

We're looking forward to hearing back from you. Just add your response below, and we'll make sure to circle back and provide the necessary support.

As instructed handling upfront retainers. I created an other current liability account for the retainers. I created an item, for the retainer as "other charge" linked that to my liability account. 

When I receive a retainer from a customer, I create a sales receipt for the deposit amount. Those funds are deposited in my main operating account. When the job is complete, I create an invoice for the total repair amount. Then create a credit memo for the amount of the initial deposit, using the same line item and apply it to the invoice. 

Now all of a sudden when I pay sales tax, my non-taxable sales are now in the negative. Which is absurd. 

I understand that you're facing an issue where your non-taxable sales tax is showing as negative when paying taxes in QuickBooks Desktop (QBDT), CSM. 

I've tried to replicate it here on my end by following the steps outlined in the article, but I am not seeing a negative balance when making sales tax payments in QBDT.

We can review the transactions from the Customer profile and ensure that we select the non-taxable items. Here's how:

1. Click on the Customers menu in the top menu bar. 

2. In the dropdown menu select Customer Center.

3. Choose the customer whose profile you want to access. From there, you'll be able to see the transactions. 

 Check out this article for your guide when you're ready to pay your sales tax after fixing the negative amount in QBDT: Pay sales tax. 

To learn more about sales tax, and sales tax liability reports, you can check these articles:

• Set up sales tax in QuickBooks Desktop
• Sales Tax Liability Report

You can always drop by again if you have other questions about managing sales tax.  If you have trouble recording your entries, let me know and I'll work with you. Have a great day.