Recording customer down payments and deposits

If set up incorrectly revenue (income) is sometimes over or under recorded, or accounts receivable shows an incorrect balance.

How to Fix:

A down payment from a customer is actually a liability until the work or product is delivered. To record as such first, create an other current liability account named “customer deposits” or similar.

Next, create an other charge item called “customer deposit”. This item should be non-taxable and the account is the “customer deposits” liability account. When receiving a down payment, record a sales receipt using this other charge item and the amount of the deposit. Create an invoice when work is completed or delivered. Enter all charges for the complete amount of the invoice. Enter an extra line using the “customer deposit” other charge item and a negative amount equal to the amount paid. This will reduce the amount due on the invoice and the liability amount at once.