How do I record a customer deposit before the work is finished?

Question

Expert Bookkeeping Services · Accepted Answer

A customer payment received before you earn it may be a liability rather than immediate revenue under accrual accounting. Track the deposit separately and recognise revenue as the agreed goods or services are delivered. Follow the contract, not just the bank receipt Review what the customer has paid for, when you must perform and whether the amount is refundable. Under accrual reporting, an advance commonly remains in a customer-deposits or deferred-revenue account until performance occurs. Tax and cash-basis rules can differ, and receiving a deposit may trigger an indirect-tax obligation before accounting revenue is recognised. Reconcile each customer's balance Keep a schedule showing receipts, work delivered, invoices applied and refunds. Match the final invoice against the deposit without recording the same cash twice. Review outstanding advances at month-end and investigate old balances. Ask your accountant to confirm the policy for retainers, subscriptions or long-term contracts, where the timing may be more complicated.

How do I record a customer deposit before the work is finished?

Short answer

Detailed answer

Follow the contract, not just the bank receipt

Reconcile each customer's balance

Official sources

Related questions

Get a fixed monthly quote