Tips for Dealing with Deposits in QuickBooks 2016

By Stephen L. Nelson

You will have to deal with deposits eventually if you plan on using QuickBooks 2016. Here is one powerful cash flow technique — and the bookkeeping required for that technique.

One easy way to improve your cash flow is to accept or require upfront deposits or retainers from clients or customers before you do the actual work. In other words, before you begin work or order inventory or do whatever is the first step in your business for completing a sale, you collect cold, hard cash.

Unfortunately, these customer deposits, as they’re called, create a bit of bookkeeping trouble. The question becomes, basically, how do you record a check or cash deposit for stuff that you haven’t yet done or sold? You have two basic options:

  • The Easy Way: You can just record a sales receipt for the service or product. In this way, you count the cash coming into your business. And you recognize the revenue. Note, too, that if the deposit is nonrefundable — and for cash-flow purposes, the deposit should be nonrefundable — you should count the revenue when you receive the deposit if you’re a cash-basis taxpayer. (You probably are a cash-basis taxpayer, but ask your tax advisor if you aren’t sure.)

  • The Precise Way: You can recognize the deposit as a new liability. You do this by creating a journal entry that records the increase in your cash account and that records the increase in your Customer Deposits current liability account. If the deposit is refundable and you’re a cash-basis taxpayer, or if you’re an accrual-basis taxpayer, you probably should use this method. When your sale is completed and invoiced later, use the Customer Deposit item as a minus amount on the sales invoice to move the amount from the liability account and apply it to the invoice balance due.