What is the best way to record a customer prepayment and deposit?

Hi philip, 

You can create a Deposit transaction for every payment of the customer as the work progresses. To record the payment as Deposit, here's how:

1. Click +(plus) icon.
2. Choose Bank Deposit. 
3. To enter Bank Deposit, under Account select Accounts Receivable.
4. Click Save and Close.

Prepaid income is a liability until the services are performed and then you would debit the prepaid liability, and credit sales in accrual basis.

If you use cash basis, then the answer above would be the best way.

Hi there

Please can you help me with this. 

I run several home improvement contracts at once. The money comes in as a deposit and gets recorded as being part of a project. 

The project shows all the money in and money out similar to the company PandL. 

The problem is that this money is showing up as an asset in the balance sheet. It fact, it is a liability to me any/all the projects are completed. 

I would like this to somehow be reflected on this balance sheet so that it doesn't look like I have £100k of my money when in fact I only have £20k to spend on company expenses. 

Can you help? 

Greetings, 1935 1477 1719 079.

Thanks for being part of the QuickBooks family. I’m here to help and ensure the money is properly tracked in your account.

In cases like this, you’ll need to record a retainer or deposit. This way, the transaction will show correctly on your financial reports.

To start with, create a liability account to track the amount of the retainer you received from your customer. Let me walk you through the steps:

1. Go to the Gear icon at the top.
2. Under Your Company, choose Chart of Accounts.
3. Select New.
4. In the Account Type drop-down, choose Other Current Liabilities.
5. In the Detail Type drop-down, select Trust Accounts - Liabilities.
6. Enter the account’s name or leave the account name as is.
7. Click on Save and Close.

Then, create a retainer item you can use to receive the deposit or retainer from your customer. For the detailed instructions, refer to the steps below:

1. Go to the Gear icon at the top.
2. Under lists, choose Products and Services.
3. Then select New.
4. On the Product/Service information window, select Service.
5. Enter a name for the product or service item.
6. From the Income Account drop-down, choose Trust Liability Account.
7. Click on Save and Close.

 If you'll be keeping the money from your customer's retainer or deposit in a separate trust account, you’ll need to set up a trust liability bank account in QBO. For the step by step process, click on this link and going directly to the create a trust liability bank account section.

That'll do it. The resolution steps will help get you moving today.

If there's anything else that I can help you find in QBO, feel to leave a comment below. I'll be glad to assist you further. Wishing you the best.

HI there

You use a Service item on a Sales receipt; this is linked to Income or to Liability, to meet your accounting and tracking requirements. That way, everything has each customer name on it, and that Item (product/Service) for reporting and for handling taxable treatment.

Y0ou don't use Banking deposit and you don't post as AR or use Receive Payment. All of this is negative AR. The receipt of this money either is your Income or your Liability, and never negative AR under proper accounting for having the funds on hand.

Later, you can use your same Prepayment Service on a credit memo for the customer for the date of the actual invoice for full charges, to apply their prepayment to the actual total sale, and reduce that to a Balance Due, for that date of the invoice and the credit memo.

How does this work if the money is received the next year or not in the year it was billed?  Or is allocated into another year.  For example, we receive a retainer in October that will be used through February.  How do we track it in the new year?

Thanks for joining this thread, RidgelineHi.

Prepayment should be treated as a liability to show that it doesn’t belong to you until it’s used to pay for services.

As shared by my colleague Rasa-LilaM above, we have to create a liability account to track the amount of prepayments. Let me show you how:

1. Go to Accounting on the left pane, then choose Chart of Accounts.
2. Hit New and choose Other Current Liabilities from the Account Type drop-down list.
3. Select Trust Accounts - Liabilities under the Detail Type drop-down.
4. Enter a name for the account example, Trust Liabilities.
5. Click Save and close.

Next, create a service item that you can use when recording invoices. Here's how:

1. Click the Gear icon and choose Products and Services.
2. Hit New.
3. Select Service from the Product/Service Information.
4. Add the service item.
5. From the Income Account drop-down, choose Trust Liability Account.
6. Lastly, click Save and close.

Here's an article for the complete details about prepayments:How to record a retainer or deposit.

As always, I'm only a few clicks away if you should have questions about this or anything else. Take care.

How would you go about it if you're using the 2016 quickbooks accountant desktop? Thanks

Hello there, @MBS3.

Allow me to guide you to record customer prepayments and deposits in QuickBooks Desktop.

To record the customer prepayment and deposit, you’ll need to record a retainer or deposit. This way, the transaction will show correctly in your financial reports.

Let's go over and create liability accounts to track the amount of the retainer you received from your customer.

Here's how:

1. Go to List menu, then click Chart of Accounts.

2. Under Account field scroll-down, then select New.

3. In the Account Type drop-down, choose Other Current Liabilities.

4. Click Continue.

5. Fill in all necessary information, then hit Save and close.

Once done, you can now create a retainer item you can use to receive the deposit or retainer from your customer. See the steps below on how.

1. Go to List, then click Item List.

2. Under Item scroll-down, then choose New.

3. On the Product/Service information window, select Service.

4. Enter a name for the product or service item.

5. Under Account field, enter Trust Liability Account.

6. Hit OK.

That should get you fixed right up. Let me know how it goes or if you're referring to something else by leaving a comment. I'm always here to help.

I have setup and use an "other current liability" account to keep track of prepaids. I also deduct that account when service is rendered. The question I have is, I have multiple customers with credit balances in one account. How do I know how much credit each customer has remaining? So that I don't short one customer and give too much credit to another. 

Toni

[email address removed]

Greetings, @ToniN.

You can generate and customize the Customer Balance Detail report. It displays how much each customer owes you. I can guide you on how to do it.

1. Go to the Reports menu.
2. Scroll down to the Who owes you section.
3. Select the Customer Balance Detail report.
4. Click the Customize button
5. Set the desired date range from the General section.
6. Expand the Filter section.
7. Mark the A/R Paid tickbox.
8. Pick All from the drop-down menu.
9. Click the Run Report button. 

In this report, the transactions are grouped per customer. Also, you'd see if their balance. You can browse these articles to learn more about generating and managing reports for specific accounts or transactions:

• Customize reports in QuickBooks Online
• Memorize reports in QuickBooks Online
• Set schedule and email information for a memorized report

Swing by here if you have other questions about tracking customer-related transactions in QuickBooks. I am just a few clicks away.

This is how I've been recording downpayments for years -- I make an invoice, use an item that ties to a liability account and receive the funds.

The issue I'm having now is that when I apply the downpayments to invoices, it's recording a negative sale on my sales tax liability report -- in June, when most of my clients use up their downpayments, my total sales amount was less than my taxable sales amount. 

This doesn't make sense.  A QB help person told me that I should just receive the money, but not make an  invoice. The problem there is that my A/R account shows a negative number since it's combining the real AR plus the liability account.  The banker doesn't like that.

I use QB Mac 2020 desktop. I'm totally confused. 

It's not a liability if it's a non-refundable retainer, as would be the case for eg. a photographer that has booked a session or an event hall that has taken a retainer to hold a time and date, that if cancelled is non-refundable.

Hi, 

I am trying to find information on Prepaid Liability Accounts.

We are a marina and have Annual, Semi Annual customers that get billed the full amount. When we receive the funds we set up a liability account so that we can allocate the income over the 12 month or 6 month period. 

We do a sales receipt to set post to liability account when the payment is received. Then create the monthly invoice per their 12 or 6 and set up recurring to pull over from liability to offset the monthly payment. 

Is the customer entitled to know that we set up a liability account or receive a statement?

Hello there, @HOW TO SYNC ANOTHER LOCATION.

In this case, It would be best to get in touch with your accountant to get the correct information and verify if your customer is entitled to know that you've set up a liability account or receive a statement. They can provide further details and explain to you thoroughly the things that you'll need to consider when doing the process.
 

If you're looking for an accountant, you can open our ProAdvisor Page. From there, you can follow these steps:

1. Pick an option of what expertise you need to find.
   • Accounting & Bookkeeping.
   • Tax & Financial Planning
   • QuickBooks Setup & Consultation.
2. Enter your city or zip code, then hit Search.
   
   

If you have any other follow-up questions, let me know by adding a comment below. I'm always here to help. Have a good one!

My company received a large prepayment from a customer. The prepayment is to be applied in increments of $10,000 on future invoices. I have the prepayment created as a liability account, but I'm not entirely certain how to record payment on invoices, using a portion of the prepayment plus a cash amount. Could you show the specific entries for this. Thanks.

Hello there, markrougeux.

I'd be happy to add some additional info about the prepayments.

Before doing so, please consult with your accountant to see if they have a preferred method of recording these transactions.

After adding liability account, create a retainer service item by following these steps:

1. Go to Sales > Products and Services.
2. Click New button, and select Service.
3. Enter a name for the new service item (ex. Retainer).
4. From the Income Account drop-down, select the liability account you've created.
5. Hit Save and Close.

Once done, you can create an invoice and use the item for the deposit or retainer payment.

Here's how:

1. Go to + New > Invoice.
2. Select the Customer's name from the drop-down list.
3. In the Product/Service column, select the Retainer or Deposit item you set up.
4. Enter the amount received for the retainer or deposit in the Rate or Amount column.
5. Click Save and close.

When you're ready to charge the customer, you can turn retainers into credit on an invoice and receive it like a payment. Doing this will decrease the amount in your liability account. Then, applies the credit to your customer's invoice, which will turn into income.

Here are the steps:

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. Hit Save. 

For more information about prepayments in QuickBooks Online, please read this article: Record a retainer or deposit.

Please feel free to leave a reply below if you have additional questions regarding the prepayment transactions or other concerns. I'm always here to help. Take care and stay safe.

dear, i want to ask a quesiton about the prepayment by customer. My client usually buys a prepaid service which allows him to consume later within a year. As a result,  he pays me the whole money now and will consume it in the future. i followed the instructions step by step from https://quickbooks.intuit.com/learn-support/en-us/help-article/service-items/record-retainer-deposit.... but it failed always. how can I record it when I receive the money from the client and spend money later by the cunstomer? thanks very much.

Good day, golden2010.

The article and steps you followed are the correct processes of handling prepayments in QuickBooks Online. I'd suggest reviewing the transactions and checking if you're allocating them to the correct liability account.

However, if you're unable to attain your goal, I'd recommend working with your accountant to ensure your books are accurate all transactions are accounted for correctly.

Additionally, you may want to bookmark this link: Resource Hub. This will provide you with resources and videos about managing your QuickBooks Online account, income, expenses, inventory, and running reports.

I'm always here to help if you have any other concerns or anything in QuickBooks. I'll make sure to get back to you as quickly as I can. Have a good one.

thanks for your prompt reply. in the first step to creat a liability account, I can't find "other current liabilities" in the accout type, only "current liabilities". could you show me where it is ? and i can't find it below either:

Select an option from the When do you want to start tracking your finances from the is account in QuickBooks?

could you help me ?

dear, i have tried my best to follow the instructions to record a prepayment I received from the customer, set up a deposit item, and invocie the customer when I deliver the service to them. but I can't produce the right figure. for example, i recevied a prepayment of 300, and then I invoice them a 100 on some day. it should be 200 left, but the trust account liability turned into 400!