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

I'm a home improvement contractor and my customers give me a deposit before work begins that is typically non-refundable.  Also on larger projects they pay me as work is progressing.  

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Best answer 10-15-2018

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QuickBooks Team

Hi philip,  You can create a Deposit transaction for ever...

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.
After a customer has made his full payment, he can link his Deposit payment to the Invoice. You can check out this link for detailed steps: Linking a Deposit to an Invoice

Please let me know if there's anything else you need. I'd be glad to assist you.
10 Comments
QuickBooks Team

Hi philip,  You can create a Deposit transaction for ever...

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.
After a customer has made his full payment, he can link his Deposit payment to the Invoice. You can check out this link for detailed steps: Linking a Deposit to an Invoice

Please let me know if there's anything else you need. I'd be glad to assist you.
Not applicable

This is the incorrect treatment of receiving a prepaid fr...

This is the incorrect treatment of receiving a prepaid from a customer from accounting standpoint.  Prepaid is an advanced payment for a service to be provided. When you receive a prepaid from the customer before providing services, it is a liability. Therefore, it should be booked to a payable account. Due to the limitation of Quickbook Online, you will have to offset the prepaid manually when issuing an invoice.
Not applicable

Re: This is the incorrect treatment of receiving a prepaid fr...

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.

 

 

Not applicable

Re: This is the incorrect treatment of receiving a prepaid fr...

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? 

 

 

QuickBooks Team

Re: This is the incorrect treatment of receiving a prepaid fr...

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.

 

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Re: This is the incorrect treatment of receiving a prepaid fr...

HI there

 
You seem to know what you're talking about. Thanks. I've tried with several people on the chat line and I got nowhere. 
 
I've now gone through the steps you've suggested, but still don't know how to transfer existing funds in deposits into the trust account. Would it be possible to do a screenshare with you at some point? 
 
Also, I'm curious to know, if and when we get this right, will I potentially be taxed on this trust money? I would like to ensure that the funds are correctly allocated partly because I don't want to run into a horrible corporation tax bill due to holding funds that, afterall, are not even company funds.
 
Please let me know. 
 
Thanks. 
 
Established Community Backer ***

Re: This is the incorrect treatment of receiving a prepaid fr...

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.

Not applicable

Re: This is the incorrect treatment of receiving a prepaid fr...

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?

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Re: This is the incorrect treatment of receiving a prepaid fr...

Is there any update for this post with the new 2019 online version. I have just switched from the Mac version and still learning. I have a prepayment to assign to an invoice so the customer can see what they owe now at the end of the project. Thank you!
Moderator

Re: This is the incorrect treatment of receiving a prepaid fr...

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.

image.png

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.

image.png

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.

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