Recording a pre-existing deposit as payment on an invoice.

@RulePropertyManagement 

This is one of the most frustrating limitations of QB.  In order to see credits that can be applied to a customer's invoice, that amount must be sitting in A/R as a credit balance.  So, the easiest way to handle this is to make a journal entry and move the prepayment from the liability account to the customer's A/R account - debit the liability, credit A/R and list your customer under NAME.  Then, when you go to Receive Payment, you will see the credit available to apply to the invoice.

In the future, you can deposit prepayments using Receive payment and it will show as a credit in the customer's account.  You can then move those amounts to a liability account when you're preparing financial statements if you need that to show as a liability (which it is).  

Thanks for posting in the Community, @RulePropertyManagement. I've got some ways to show the deposit in the Credits section when receiving payment in QuickBooks Online (QBO).

Yes, Rainflurry is right. To show the Credits section, you'll need to ensure that the deposit is posted in the Accounts Receivable. If you're unable to see it, you can follow the steps above to create a Journal Entry so you can move the amount from the liability account to the customer's A/R.

Based on your scenario, it appears you're recording a retainer from your customer. It's an advanced payment from them before fulfilling any services. You're already correct in creating a liability account first. However, you'll also need to create a retainer item, so you can select this when creating an invoice for a deposit or a retainer payment. For the detailed step-by-step guide, please refer to this article: Record a retainer or deposit.

Furthermore, you may utilize reports in QBO to gain informative details regarding your sales.

Let me know in the comments below whenever you have any clarifications about recording a pre-existing deposit as payment on an invoice in QBO. The Community is here to assist you at all times. Stay safe and have a great rest of the day!