Hi there, Ashley.
You're correct. When you receive a prepayment from a customer, you can create a liability account and record it as a retainer. This is because retainers are considered a liability until the work has been completed or the service has been provided. When you invoice the customer and receive the payment, you'll then convert this liability into income on your books.
First, let me guide you on how to create a liability account to track the amount of retainers you receive from your customer.
1. Navigate to the Gear icon and then select Chart of Accounts.
2. Click on New to create a new account.
3. From the Account Type dropdown, choose Other Current Liabilities.
4. In the Detail Type dropdown, select Trust Accounts - Liabilities.
5. Enter a Name for the new account.
6. Input the date for When do you want to start tracking your finances from the account in QuickBooks? under As of.
7. Finally, click on Save and Close.
Then, create a retainer item. You can also create individualized items for each of your customers.
- Go to the Gear icon, then select Products and Services.
- Select New.
- From the Product/Service information panel, select Service.
- Enter a name for the new product or service item.
- From the Income account dropdown menu, select the liability account created in Step 1.
- Select Save and Close.
For thorough steps, feel free to check this article: Record a retainer or deposit.
For future reference, if you wan to combine multiple transactions into a single record so QuickBooks matches your real-life bank deposits check this article: Record and make bank deposits in QuickBooks Online.
Feel free to reach out if you have more questions about prepayments any QuickBooks-related queries. We're always here to help.
