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arkvalleyinfo
October 16, 2018
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What is the best way to record a customer prepayment and deposit?

  • October 16, 2018
  • 2 replies
  • 0 views

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.  

Best answer by arkvalleyinfo
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.

2 replies

MariaSoledadG
MariaSoledadG
October 16, 2018

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.
A
arkvalleyinfoAuthorAnswer
October 16, 2018
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.
    S
    SandraS
    October 25, 2018

    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.

     

     

      G
      golden2010
      February 16, 2022

      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/L6B5RsY6l_US_en_US#M4. 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.

      Rose-A
      Rose-A
      February 16, 2022

      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.

      G
      golden2010
      February 16, 2022

      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 ?

       

       

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