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jim77144
Level 2

What is the proper method for recording customer deposits for jobs that will be done in the future and don't have an invoice? We are on cash accounting method.

Should we use a liability account like unearned revenue for deposits? And then apply those amounts to an invoice once the job is completed? What happens if the deposit is given and the job doesn't get done until the next year?
2 Comments 2
IrizA
QuickBooks Team

What is the proper method for recording customer deposits for jobs that will be done in the future and don't have an invoice? We are on cash accounting method.

I know some steps for you to record the deposits for jobs that will be done in the future, Jim

 

In QuickBooks Online (QBO), you can set up a deposit or retainer if you have a job that will be done in the future. This serves as a liability account that can be converted into an income account once you receive the payment. 

 

Step 1: Create a liability account 

 

  1. Go to the Gear icon located at the upper right corner, then select  Chart of Account
  2. Press New. 
  3. Under the Account Type dropdown, select Other Current Liabilities
  4. Within the Detail Type dropdown, choose Trust Accounts - Liabilities
  5. You can enter a name according to your preferences in the Name field. 
  6. Click the When do you want to start tracking your finances from this account in QuickBooks? dropdown, choose an option. 
  7. Once done, click Save and Close

 

Step 2: Create a retainer item

 

  1. Go to the Sales menu located at the left navigation panel, and click Products and Services
  2. Press New, and choose Service.
  3. Type your preferred name for the product. 
  4. Click the Income account dropdown, and choose the liability account you created. 
  5. Press the Create new once you're done. 

 

Step 3: (Optional) Create a trust liability bank account 

 

If you keep the money from customer retainers and deposit it in a separate trust account, you can repeat step 1. Ensure that you enter a different name as you create it. 

 

Step 4: Create an invoice for deposits or retainers

 

Please know that if you're using a cash basis report, it will not reflect the deposit/retainer as received until it is paid in full. You can reach out to your accountant regarding this. 

 

  1. Go to the + New, and click the Invoice option.
  2. Choose the Customer name from the dropdown list.
  3. Under 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

 

Step 5: Turn retainers into credits on invoices

 

If you charge a customer for the services you've provided for them, you can turn the retainer or deposit into credit on an invoice and receive it like a payment. Ensure that the retainer amount is not greater than the invoice total. Please know that a negative total is not acceptable. 

 

  1. Create an invoice for your customer that lists the services or goods you've provided.
  2. Under the Product/Service field, choose the Retainer or Deposit item.
  3. Enter the retainer Amount in the provided field.
  4. Once everything is done, click Save and close.

 

For more detailed steps, you can refer to this article since it consists of a lot of steps and information that can help you more when it comes to retainer or deposits: Record a retainer or deposit

 

Additionally, you can also run a report and customize them according to your needs. 

 

Let me know if you need further assistance with retainer, and I'll be glad to help you in any way possible. 

Rainflurry
Level 15

What is the proper method for recording customer deposits for jobs that will be done in the future and don't have an invoice? We are on cash accounting method.

@jim77144 

 

Cash basis taxpayers don't have unearned revenue.  A deposit for a job is income when received.  You can set up a service item for the deposit mapped to an income account and then apply that item as a negative amount on the future invoice(s) to reduce the amount due.  That will properly record the deposit as income when received, the full amount of income on future invoices, and you won't need to worry that you aren't reporting deposits received as income at year-end.  

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