Many companies take Deposits when a bid has been accepted, both to confirm a client’s commitment, and so they have the resources they need to start the job for the customer.
There are two ways to manage Customer Deposits in QuickBooks Online, depending on the needs of a company. If the jobs are small and so is the risk, or if the deposit is nonrefundable, you can use QBO’s built-in Deposits feature.
Most of the time, however, you should handle Deposits according to standard accounting practices. When accepting money as a retainer, it’s not yet considered Income. Instead, it’s a Current Liability on the Balance Sheet because it’s unearned revenue. The money does not belong to the business, because if the job falls through the money has to be returned.
QuickBooks Online gives QuickBooks Users two ways to handle Customer Deposits properly. One is built-in and counts the Deposit immediately as Income. The other is more of a work-around, but properly holds the money as a Liability until the Customer’s full payment is received.
QBO’s Built-in Deposits Feature
This works best when QuickBooks Users are ready to make the Invoice and have already received the Deposit money.
The first step is to turn on the Deposits option in the Company Settings. Go to the Gear > Account and Settings.
Click on Sales on the left. Put a check-mark in front of Deposit (as shown below).
Save the changes.
Sales 'Deposit' setting in QuickBooks Online Account & Settings.
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Next, create a new Invoice (+New > Invoice), or open the existing invoice for the project.
In the Deposit field on the bottom right, enter the amount of money received. When that’s done, a new set of boxes will appear on the left above the Product/Service grid (as shown in the illustration below). Enter the type of payment that was received, and where it is going (Undeposited Funds is best).
In a new or existing QBO Invoice when you have entered an amount of money received a new set of boxes appears to record payments details.
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The Customer Deposit has now been recorded as Income, and the balance remains on the Invoice for future payment.
Sometimes these Deposits are tricky to find in the Register, because they act as a Sales Receipt but were created within an Invoice.
Lesson Wrap-up
Next week's article will explore the set-up and workflow for properly tracking retainers as liabilities. If you would like to see these steps in action visit my QBO Knowledge Base. That course is being continually updated every month so that the QBO Fundamentals remain current and up-to-date at all times. Use code IA10 for 10% off!
I also want to make you aware of my upcoming Insightful Accountant co-sponsored webinar titled, QuickBooks® Online Banking which will teach you how to about bank accounts in QuickBooks, importing and matching bank feed transactions, categorize your expenses, attach receipts and much more. Join us for that webinar on April 22 at 12:00 p.m. Eastern, you can Register Here.