Handling upfront deposits and retainers

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Customer may pay you money in advance as a deposit before the job is even started. In accounting it is also commonly known as an upfront deposit or retainer. It is a liability on your books even though you deposit the funds into your bank account. At this point, you should not record it as income when you get it simply because you have not earned the income. Either you have not shipped the product or service has not started or completed at this point. So, think of this as an Unearned Income/Revenue at this point and it will sit on the company Balance Sheet as a short-term liability account.
How to setup QuickBooks for upfront deposits or retainers account?
You will start with creating two new things in QuickBooks.

1. Create a liability account for your upfront deposits or retainers. You will create this on the Company Chart of Accounts.

GO to Lists menu > select Chart of Accounts > select Account (located at bottom left) > choose New > select Other Account Types > select Other Current Liability > Continue > Account Name = Upfront Deposits > Description > Description = Upfront deposits, retainers, unearned revenue > Save & Close

Upfront deposits, retainers, unearned revenue

2. Create an upfront deposit or retainer item. You will create this on the Item List.
GO to Lists menu > select Item List > select item (located at bottom left) > choose New > select Service > Item Name/Number = Upfront Deposits >
Checkbox = this service is used in assemblies or is performed by a subcontractor or partner
Description = Upfront deposits, retainers, unearned revenue
Cost and Sales Price = 0.00 (default)
Expense Account = Upfront Deposits
Income Account = Upfront Deposits
Click OK

Upfront deposits, retainers, unearned revenue

Enter Sales Receipts to record Upfront Deposits
In this case, you have already received a check from the customer as an upfront deposit. You will deposit to the bank account or have already deposited the back account.
You will take the following steps to do this task:
1. Go to the Customers menu and click Enter Sales Receipts.
2. Click the Customer:Job drop-down list and choose the customer and the job name (if applicable).
3. In the Date field, enter the date you deposited the funds.
4. Click the Payment Method drop-down list and choose a payment method.
5. In the Item field, click the drop-down list and choose Upfront Deposit.
6. Enter the deposit amount in the Amount column.
7. To include a message on the customer receipt, click the Customer Message drop-down list and choose a message, or click Add New to create a new message.
You can also customize the Sales Receipt form by changing the title to Upfront Deposit to make it clear to the customer what the receipt is for.
8. Click Print or Email to create a receipt for your customer.
9. If the Deposit To field is displayed at the bottom of the form, select the bank account in which you want to put the funds.
Note: If your Sales & Customers preferences are set to “Use Undeposited Funds as a default deposit to account,”, your deposit will automatically be added to your Undeposited Funds account and you will not see this option.
10. Click Save & Close to record the Upfront deposit.

Upfront deposits, retainers, unearned revenue

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