what entries do i make for a customer who partly paid the invoice amount as down payment for a job our company has not done to date. The part payment was done early last year but then the client moved out of the country and he won’t carry on with the project as planned. The customer is not asking for a refund either so there is no money going out. What journals should i pass in this case since this is not a bad debt?
First of all, I hope you did not issue that customer a sales invoice, since no work had been done. Customer advances should currently be handled as described below, but this guide reflects recent changes to Manager and might not be completely applicable to your situation:
The abandoned deposit is a form of income. How to handle the situation depends on where things currently stand. If you erroneously entered a sales invoice, you have already recognized the income. You may want to transfer it from a standard income account to an abandoned deposit income or other income account. But this will not change your net income. If you’ve already moved into a new accounting period, you may need some adjusting entries that your accountant is best placed to recommend, as there may be tax implications. I won’t hazard a guess.
If you posted the deposit to a liability account in some other way (there would have been several possibilities), you must now convert it to income. Use a journal entry to debit the deposits liability account and credit the abandoned deposits account. Again, there might be tax reporting implications to be sorted.
I should also mention that the exact steps will also depend on whether you are using accrual or cash basis accounting.