Why does a down payment on an invoice get recorded into Quickbooks before the actual funds are received? Shouldn't the down payment go to a receivable?

Greetings, @pepsikat96,

Allow me to share a few insights about advance payment.

To start, the advance payment is recorded in QuickBooks since you've received the payment as the actual money from your customers.

Once you've received the whole payment of an invoice, the money flows into your Undeposited Funds.

You can create a deposit or retainer process. Which is treated as a liability. Although your business is holding the money, it doesn't belong to you until used to pay for services. When you invoice the customer and receive payment against it, the liability will be an income to your account.

I've attached an article for the detailed steps in creating a retainer: How to Record a Retainer or Deposit?

Feel free to leave a comment below if you have any other questions. It'll be my pleasure to help you here in the Community.

I set up Down Payments as an item linked to an "Other Current Liability" account.  However, when I pull the stock "Sales by Customer" report, the down payment invoice shows up as a sale as soon as I invoice it.  Shouldn't items set up as liability accounts not be included in the sales report?  Shouldn't it be considered a "sale" after I ship the items or complete the work?

Let me share some insights on why the transaction shows up when running the Sales by Customer report, @ELM_15.

Since the down payment item is created or recorded as an invoice, it will still be counted as a sales transaction even though you link it to a liability account to track it. This report will show or lists all sales transactions, including invoices, created for your customers. This is the reason why the down payment item is included in it.

However, the amount from this invoice will show in your Balance Sheet under the liabilities section. You can pull up this report by going to the Reports menu and search for the Balance Sheet report.

For more information on how you can record a down payment in QuickBooks Online (QBO), you can check this out: How to record an advance payment in QBO.

If you ever have other questions we can help you with, feel free to swing by the Community.