Customer Deposits or Prepayment are confusing and sometimes can be tricky. Use the following procedure in QuickBooks to process your Customer Deposits:
Set up an Item called Customer Deposit and map the Item to a Current Liability Account.
Customer deposit items are used when a client prepays for products or services before they are received. For that reason, they are mapped to current liability accounts.In QuickBooks set up go to:
- Item List
- Add a new item
- Item type would be Other Charge
- Name the item Customer Deposits
- Set up the account as a current liability
Use the item as a positive amount on the invoice or sales receipt
You will increase both the current liability account and undeposited funds like any other customer payment. However, it does not increase revenue because it hasn't been earned yet.
Once the revenue is earned
Apply the deposit to the invoice or sales receipt as a negative amount. If the product/service was entirely prepaid, you'll create a $0 invoice using your normal revenue items (which will increase revenue) and the customer deposit item with a negative amount (which will decrease the current liability account).
Since no cash is changing hands (it already happened in the past), it doesn't increase undeposited funds. However, if you only received a partial customer deposit, the negative amount will reduce the invoice or sales receipt balance due down to the remaining amount due.
Payment items, on the other hand, are used for partial payments. They're widely used for daily sales receipts (when you enter one sales receipt for the entire day - like with restaurants).
Payment items can also be used when you receive any partial payment. For instance, you might require 50% of the payment upfront and invoice the remaining 50% (in which case you'd use a payment item on the invoice for the 50% upfront payment). Or a client might make a partial cash payment with the rest charged to their credit card.
Confused? Applying Customer Deposits are not easy. Call us. BudgetEase can set up a system to easily manage your prepayments and deposits or provide any other QuickBooks help.