A customer deposit is money from a customer to a company before the company earns it. It is a simple cycle whereby when the company receives cash from a customer and in return, they need to supply goods and services or return the money. Customer deposit accounting means that the funds will be credited. It follows the accounting principle; the deposit is a current liability that is debited and sales revenue credited. A customer deposit could also be the amount of money deposited in a bank. Since there are no cash earnings, the money is debit to the bank and credit to the customer’s deposit account.

Example of a Customer Deposit

In accounting, it is essential to observe the double-entry rule. When company XYZ agrees to manufacture a product for a customer, it is common to request a down payment. When the payment is made, the company will debit cash and credit the customer deposit account as a current liability. After completion, the company will then debit customer deposits and credit sales revenue with the same amount.

Situations where Customer Deposits are Applicable

There are about four scenarios where you can use customer deposit:

1. Poor credit: It happens when a customer has a poor credit record and needs to make prepayments.
2. High cost: This happens when it becomes expensive to manufacture or produce goods ordered. The company will then request a deposit to facilitate the production process.
3. Customised: When a customer requests personalised or customised products, the company might request a customer deposit to deliver as per the specification given.
4. Goods held: It happens when a customer intends to reserve goods, and there are no delivery plans.

The Accounting Process Involving Customer Deposits

In accounting, a customer deposit is simply repayment for the purchase of future goods and services. It is unearned revenue to the company or seller, and it is also an overpayment of customer’s invoices treated as accounts receivables. When a customer walks into a business entity, it will receive the customer deposit and record it as a liability. After delivery, you need to record on the balance sheet by debiting the liability to eliminate it. As per customer deposit accounting, they will credit the revenue account and treat it as a sale. It may happen in stages, mostly when the delivery occurs over time. The best advice is to invest in accounting software like Xero; in the end, you will enjoy the accounting process, save time, and generate accurate financial records. After the company accepts customer deposits, they will not incur any sales tax liability. The only way that will be applicable is after goods are delivered, and the deposit becomes a sales transaction. Some customer deposits can be paid before processing the order, and when this happens, it happens directly into QuickBooks. The process starts with creating an invoice and synchronizing it to get the final accurate invoice. It has become a more manageable process using technology; all customer deposit accounting is done from one central point. Anytime there is a customer deposit account, remember that it will be treated as a current liability. It happens when the goods and services provided are within a year; it becomes a long-term liability when it is a more extended period. When you are new to the customer deposit business and accounting, it is advisable to outsource experts’ services in the field. Find out more from GoCardless to help you with ad hoc payments or recurring payments. GoCardless will sort your automated payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. A customer deposit is a prepayment for the purchase of future goods and services (unearned revenue). Overpayment of customer invoices (A/R) may also be considered customer deposits because they are also considered unearned revenues. When a customer deposit is entered, it must be posted to a liability account (unearned revenue) that belongs to the Customer Deposits account category.

Step A: Verify or Add a Customer Deposits Account (Onetime Setup) Step B: Creating Deposits for Customer Overpayments and Prepayments/Deposits Step C: Applying Deposits to Invoices Refunding a Customer Deposit Frequently Asked Questions

CenterPoint offers multiple ways to customize the transaction entry screens. This customization will enable you to enter transactions more efficiently. Click here to view a document that describes the customization you can perform. Click here for an overview of transaction entry.

Step A — Verify or Add a Customer Deposits Account (Onetime Setup)

1. Select Setup > Accounts > Accounts and review the list to see if you have an existing Customer Deposits account. If you do, edit that account. Otherwise, click New to begin adding a new account.
2. If you are editing an existing Customer Deposits account, verify that the Type is set to Liabilities and the Category is set to Customer Deposits. Correct if needed. Then, click Save and skip to Step B section below.
3. When creating a new account, enter an appropriate Number and Name.

4. Select Liabilities as the Type.
5. Select Customer Deposits as the Category.
6. Click Save.

Step B: Creating Deposits

There are two types of deposits that can be entered in CenterPoint depending on if the customer is giving you a prepayment or deposit for a futre purchase, or if they have inadvertently overpaid an invoice. Step-by-step instructions are included below for both scenarios.

Creating a deposit for a customer prepayment or deposit

1. Select Processes > Sales > Receipts.

2. Enter the Bank Account the receipt will be deposited into. If using bank deposits, also specify the appropriate Bank Deposit.
3. Enter the customer the deposit was Received From, the Date, and the Amount. The Payment Type and Check/Ref # fields are optional. Messages will display when duplicate sequence numbers are found based on the Duplicates and the Check When fields in Setup > General > Numbering Sequence. The messages inform you if a duplicate sequence number was found and how the duplicate sequence number should be replaced with a new sequence number, automatically or manually.
4. In the grid, select your Customer Deposits account in the Account field.
5. If a receipt for the customer is desired, click the Print button.

Note: If you want to attach a document to this transaction, see the Attach Documents to Transactions topic for detailed information.

6. Click Save to complete the transaction. This receipt will now display as a deposit on the customers account, increase the bank account and increase the customer deposits liability account.

Creating a deposit for a customer’s overpayment

1. Select Processes > Sales > Receipts.

2. Enter the Bank Account the receipt will be deposited into. If using bank deposits, also specify the appropriate Bank Deposit.
3. Enter the customer the deposit was Received From, the Date, and the Amount. The Payment Type and Check/Ref # fields are optional. Messages will display when duplicate sequence numbers are found based on the Duplicates and the Check When fields in Setup > General > Numbering Sequence. The messages inform you if a duplicate sequence number was found and how the duplicate sequence number should be replaced with a new sequence number, automatically or manually.
4. Click on the Apply to Open Invoices button.

5. Enter the amount received in the Receipt Amount field, and click Apply.
6. The remaining amount of the receipt will display in the Over Payment (Customer Deposit) area. Select your Customer Deposits account in the Account field. The amount will display automatically.
7. Click OK to return to the original receipt screen.

Note: If you want to attach a document to this transaction, see the Attach Documents to Transactions topic for detailed information.

8. Click Save to complete the transaction. This overpayment portion of this receipt will now display as a deposit on the customers account, increase the bank account and increase the customer deposits liability account.

Step C: Apply Deposits to Invoices

There are two processes that can be used to apply a previously entered deposit to an invoice. Both are described below.

Option 1 — Apply the deposit while entering the customer sales invoice

1. Select Processes > Sales > Customer Invoices. Use the normal process to enter an invoice for the customer.
2. By default the system will automatically apply any unapplied deposits to the invoice. The amount applied will be displayed in the Deposits field.

The deposit amounts will automatically be applied to the current invoice unless you change the deposit application by clicking the Deposits button and change the deposit application. If the applied deposit is less than or equal to the balance due on the current invoice, the entire amount is applied. If the applied deposit is greater than the balance due on the current invoice, only the balance due will be applied. The Balance Due is calculated as the Invoice Total — Amount Received Applied — Sum of Customer Deposits Applied — Discount Amount. Click OK. Note: If you prefer that the system not automatically apply deposits, click on the Options button at the bottom of the screen, select Apply Customer Deposits, and then select Manually Apply Customer Deposits to Invoices. If you are manually applying customer deposits, the amount in the Deposits box will always display as 0.00 even if you have deposits available for application. To display all outstanding deposits and manually apply the deposit, click Deposits. The Apply Customer Deposits screen displays all available deposits that have previously been received with a deposit date that is less than or equal to the current invoice date and not yet applied to a sales invoice. To apply the deposit to the invoice, select the check box next to the Date and then click OK. If the applied deposit is less than or equal to the balance due on the current invoice, the entire amount is applied. If the applied deposit is greater than the balance due on the current invoice, only the balance due will be applied. The Balance Due is calculated as the Invoice Total — Amount Received Applied — Sum of Customer Deposits Applied — Discount Amount.

3. The Net Due is calculated as the Invoice Total — Amount Received Applied — Sum of Customer Deposits Applied — Discounts.
4. Click Save to complete the invoice and application of the deposit.

Option 2 — Apply the deposit after the customer sales invoice has been entered

1. Select Processes > Sales > Apply Customer Deposits.

2. Enter the Customer and the Transaction Date.
3. Click on the lookup button to the right of the Deposit field to display all unapplied deposits. Select the appropriate deposit from the list.
4. In the grid below, select the invoice(s) to apply the deposit to. All unpaid invoices will display in the grid. To select an invoice, put a check in the Apply box.
5. Click Save to complete the transaction.

Refund a Customer Deposit

Option A: Refund a Customer Deposit with a Printed Check

1. Select Processes > Sales > Refund Customer Deposits.

2. Enter the Company/Fund, Customer, and select the Refund Date. In the Refund Method box, select Payment.
3. Select the BankAccount. If you need to print a check for the refund, enter the check number and check the Print this check? box.
4. Memo Line 1 will display the following text: «Refund customer deposit/overpayment». This text can be changed. Enter any other information into the Memo Line 2 box.
5. Select the deposit to be refunded.
6. Click the Print button. (An image of a printer displays on the button. A green check mark means the check will be printed and a red X means the check will not be printed.) Select whether the check should be printed when it is created, the printer to print the check to and the number of copies to print. To set your default for the Print button, right-click on the button and select Set As Default. To override the Print button default, click the Print button and change the settings on the Print Settings screen.
7. Click Save to complete the refund .
8. Click Close.

Option B: Create an Vendor Invoice for a Refunded Customer Deposit

1. Select Processes > Sales > Refund Customer Deposits.

2. Enter the Company/Fund, Customer, and Refund Date.
3. Select Accounts Payable Invoice as the Refund Method.
4. Select the AP Account and enter an optional Invoice Number.
5. Select the Customer Deposit you are refunding.
6. Click Save to complete the refund and create the AP Invoice. Click Close.

Frequently Asked Questions (FAQ)

Q: Which report should I use to review my customers outstanding deposits? A: The Customer Deposits report. Select Reports > Reports > Transaction Reports > Receipts > Customer Deposits. Q: Is there a way to un-apply a deposit to an invoice? A: Yes. The easiest way to do this is by using the drill-down capabilities in our reports.

1. Preview the Applied Customer Deposits Journal (Reports > Reports > Transaction Reports > Receipts > Applied Customer Deposits Journal).

2. While previewing the report, verify that it is in interactive mode by clicking on View and selecting Interactive Mode. Click on the dollar amount to be un-applied in the Amount Applied column to display the original transaction that applied the deposit (this will be either the Apply Customer Deposit or Customer Invoice screen).
3. If the Apply Customer Deposit screen is displayed, click the Delete button.

Note: if you’d like to apply it to a different invoice, simply deselect the Apply box for this original invoice and put it in the correct invoice. If the Customer Invoices screen is displayed instead, click on the Edit button. Then select the Invoice tab and click on the Deposits button. Remove the check box to the left of the transaction. click Ok and then Save. Q: Which report will show me deposits that have been applied? A: The Applied Customer Deposits Journal (Reports > Reports > Transaction Reports > Receipts > Applied Customer Deposits Journal) will display all applied deposits. While previewing this report, use the drill-down capabilities to review which invoice(s) it was applied to. This is done by clicking on the dollar amount while previewing the report. Note: While previewing the report, verify that it is in interactive mode by clicking on View and selecting Interactive Mode. Q: Can I delete a customer deposit? A: If a customer deposit was inadvertently entered, it can be deleted as long as it has not been included in a bank deposit and is not in a closed period. Note: If it is deleted, customer reports will not show the deposit be entered & reversed. It will not display at all. The easiest way to do delete a customer deposit is by using the drill-down capabilities in our reports.

1. Preview the Customer Deposits report (Reports > Reports > Transaction Reports > Receipts > Customer Deposits). Note: While previewing the report, verify that it is in interactive mode by clicking on View and selecting Interactive Mode.
2. Click on the deposit amount to be deleted. On the Applied Customer Deposits Journal that is displayed next, again click on the deposit amount. The original Receipt transaction will be displayed.
3. Select the Delete button.

Q: Will customer deposits/overpayments be included in the Open Invoice and Aged Receivable reports? A: Customer deposits and overpayments can be included in the Accounts Receivable Aging, Customer Deposits, Applied Customer Deposits Journal, and the Customer Ledger reports. There is not an option to include them in the Accounts Receivable Open Invoice report.

Document: 3038

See Also https://help.myob.com/wiki/x/vYWO Close How satisfied are you with our online help?* Just these help pages, not phone support or the product itself Very dissatisfied Very satisfied Why did you give this rating? It’s hard to find information Instructions are hard to follow Content isn’t detailed enough It doesn’t fix my software problems A deposit is a payment for goods or services that you haven’t invoiced the customer for yet. This means if you receive a payment against a sales order, it’s considered a deposit. This also applies to deposits you’ve paid to suppliers. Need to print a receipt for a deposit? See Printing payment receipts. Just started using a new company file? If you’ve taken customer deposits for orders yet to be fulfilled, you’ll need to enter these pre-conversion deposits. Because no goods or services have changed hands or invoice ussued, AccountRight treats deposits differently to other payments. A customer deposit is typically posted to a liability account because it’s not yet considered business income. When the sales order is converted to an invoice, the deposit is transferred from the liability account to your trade debtors account. To set up AccountRight to track customer deposits, or to check the liability account used for deposits, go to Setup > Linked Accounts > Sales Accounts.

Recording a customer deposit

If the deposit is paid	do this
when the order is created	enter the deposit amount in the Paid Today field on the order
after the order is created	use Receive Payments to apply the deposit to the order

You can either print a payment receipt or give the customer a copy of the order as a record of the deposit (open the order and click Send to then choose Email or Disk).

Deleting or reversing a deposit

How you delete the deposit depends on the sales order.

If the sales order…	do this…
has NOT been converted to an invoice	You can simply reverse or delete the deposit as follows: Open the order (Sales > Sales Register > Order tab > click the zoom arrow to open the order). Click History to display the payment transaction. Click the zoom arrow to open the payment transaction. Go to the Edit menu and chose Delete Payment (or Reverse Payment). The ability to delete or reverse is set in your AccountRight preferences (Setup menu > Preferences > Security tab > Transcations CAN’T be Changed; They Must be Reversed).
HAS been converted to an invoice	You can’t simply delete the deposit; the invoice will first need to be reversed. This provides an audit trail of the transaction and allows the deposit to be refunded. The tasks below show you how to do this. The scenario we’ll use is where an order has been created and a deposit applied, then the order is converted to an invoice but is subsequently cancelled. If you need to reverse the deposit because the wrong amount has been applied, after completing the steps below you’ll need to recreate the order and apply the correct deposit amount.

1. Reverse the invoice

Reverse the invoice

Reversing the invoice will create a credit note for the total amount of the original order. To allow transactions to be reversed, you need to set a preference in your software. Then you can reverse the invoice. To set the preference

1. Go to the Setup menu and choose Preferences.
2. Click the Security tab.
3. Select the option Transactions CAN’T be Changed; They Must be Reversed.
   
4. Click OK.

To reverse the invoice

1. Open the invoice you want to reverse. See Finding a transaction for instructions.
2. Go to the Edit menu and choose Reverse Sale. A new transaction containing corresponding negative amounts to that of the original transaction appears.
3. If you want, alter the date and memo.If you’re running on an accrual basis, ensure the date is set in the correct reporting period.
4. Click Record Reversal. A credit note will be created for the value of the reversed invoice.

2a. Settle the credit (if refunding the deposit)

Settle the credit (if refunding the deposit)

You can use the credit note created in the previous task to:

• settle the outstanding balance of the original invoice (minus the deposit amount), and
• refund the deposit.

Here’s how:

1. Go to the Sales command centre and click Sales Register.
2. Click the Returns and Credits tab.
3. Click to select the credit note created above, then click Apply to Sale. A list of open invoices appears.
4. Click to select the customer’s original invoice. This invoice will have an outstanding balance of the original order amount minus the deposit.
5. Change the Credit Amount field to match the amount left owing on the invoice.
6. Click the Amount Applied column for the invoice. This will change the value to match the Credit Amount field.
7. Click Record. This settles the original invoice and leaves a credit balance equal to the value of the deposit.
8. Click to select the credit note again, then click Pay Refund.
9. Select the account from which you want to pay the deposit refund.
10. Click Record. This refunds the deposit component of the transaction, and settles the remaining credit.

2b. Settle the credit (if not refunding the deposit)

Settle the credit (if not refunding the deposit)

If the deposit is non-refundable, you need to:

• create an invoice for the deposit amount (to account for the receipt of this money into business income), then
• apply the credit note to:
  • close the deposit invoice, and
  • settle the outstanding balance of the original invoice (minus the deposit amount)

Here’s how: Create an invoice for the deposit amount When recording the invoice, use the following details:

• Use the Service layout.
• Select the same customer as the original invoice.
• Enter a Description which describes the transaction, such as Non-refundable deposit for order XXXX
• If you’re running on an accrual basis, make sure the Date is in the correct reporting period.
• Enter the deposit amount.

Apply the credit note

1. Go to the Sales command centre and click Sales Register.
2. Click the Returns and Credits tab.
3. Click to select the credit note for the reversed invoice, then click Apply to Sale.
4. Click to select the invoice you created for the deposit amount.
5. Change the Credit Amount field to match the deposit value.
6. Click the Amount Applied column for deposit invoice. This will change the value to match the Credit Amount field.
7. Click Record. This settles the deposit component of the transaction which is now considered business income.
8. Click to select the credit note again, then click Apply to Sale.
9. Click to select the customer’s original invoice. This invoice will have an outstanding balance of the original order amount minus the deposit.
10. Click the Amount Applied column for the original invoice. The value will change to match the remaining balance of the credit note.
11. Click Record. The remaining credit is applied and the original invoice is closed.

Customer deposit FAQs

What if the order was paid in full and then cancelled?

What if the order was paid in full and then cancelled?

If the order was paid in full, you can treat the payment the same as a deposit. You can then follow the steps above to:

1. Convert the order into an invoice.
2. Reverse the invoice to create a credit.
3. Settle the credit (based on whether or not the payment is refundable).

What is a ‘Transfer from deposit’ transaction?

What is a ‘Transfer from deposit’ transaction?

When a deposit is paid for a sale, the deposit amount is typically posted to a liability account. When the sale order is converted to an invoice, AccountRight needs to transfer the deposit amount from the applicable account and post it to your trade debtors account. This will appear in your transaction journal as a Transfer from deposit.

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