How do you apply a deposit made by the customer to an invoice before the labor is performed

Hi there, melinda_wilkinso.

You'll want to record the deposit made by your customer before the labor is performed as a prepayment. Prepayment is treated as a liability to offset the deposit asset into your bank account. When you invoice the customer and receive payment against it, you'll turn that liability into income.

Let me guide you through the whole process of prepayment and paying it by creating an invoice. The first step is to set up a liability account and retainer item.

Here's how to create a liability account:

1. Go to Accounting and choose Chart of Accounts.
2. Click New.
   
3. Fill in the account information and choose Other Current Liabilities as your  Account Type. If you're not sure what Detail Type to use, you can ask your accountant.
4. Click Save and close.

Here's how to create an item:

1. Go to Sales and choose Products and Services.
2. Click New.
3. Enter the necessary details.
4. Click Save and close.

Once done, let's make an invoice for the deposit from your customer.

Here's how: 

1. Go to the Plus icon (+) at the upper right. 
2. Under Customers, select Invoice.
3. Choose the Customer name from the drop-down list.
4. In the Product/Service column, select the Retainer or Deposit item you've set up.
5. In the Rate or Amount column, enter the amount received for the retainer or deposit.
6. Click Save.

Once done, you'll need to turn retainers into credit on an invoice and receive it like a payment.

Here's how: 

1. Create an invoice that lists the services or goods you provided for your customer.
2. 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.
4. Click Save. 

This will decrease the amount in your liability account and applies the credit to your customer's invoice. This will turn into income.

Learn more about prepayments in QuickBooks Online (QBO) by visiting this link:  How to Record A Retainer or Deposit.

Stay in touch if you have follow-up questions while recording prepayments, I'll be here to help you. Have a good one!