Customer Deposits are one of the first thing I like to figure out how to record, when I am playing with new accounting software. Here’s where I show you how to record customer deposits in QuickBooks Online. When you record customer deposits, it affects both the Balance Sheet, and the Profit and Loss. Furthermore, we’re doing it, in a way that sort of tests the flexibility of the software itself.
Invoices are intended to capture income. In the case of customer deposits we are using an invoice to capture a liability. For this reason, when you think about how to record customer deposits in QuickBooks online, you are testing the flexibility of the accounting software. This is because you are using an invoice in a way that is a little different from the norm. In other words, you’re using an invoice in a way that is somewhat different than intended.
To capture a customer deposit, using an invoice in QuickBooks Online, we will need to set up a product / service item, which is linked to the liability account. Then we can use that item to capture the deposit. This is how you get the invoice to push the amount of the transaction to the liability section of the balance sheet, instead of the income section of the income statement. Keep in mind that we haven’t actually received the deposit, until that invoice is paid. The invoice is only part of the picture of how to record customer deposits in QuickBooks Online. Then you must receive the payment, before you can apply the deposit / retainer to an invoice for the products or services you sell.
When the time comes to bill the client, we’ll need to understand how to apply the retainer we received to that invoice. There are a couple of ways you can do this. In the video you will see and hear me explain two methods, and why I don’t like the one, many people are inclined to use. Then I’ll show you how I like apply the customer deposit to the invoice for a client. Finally I will show you how to customize the report, you will want, in order to track and analyze customer deposits in QuickBooks Online.