When I issue an invoice, any previous payments (in my case a deposit) show the transaction they have been posted with:
Since this is meaningless to customers, I want to show a description such as “Deposit”. Is this possible and if so, how?
A deposit should never have been entered with a journal entry. Use a receipt and it will be labeled as such. Your customer knows they made a deposit.
@Tut, the deposit is posted to a “deposit” account (a liabilities account) using a receipt. To get it off that account and into accounts receivable (an assets acount) where it is posted against the invoice, I used a journal entry.
The procedure to post deposits using receipts directly into accounts receivable suggested in other posts doesn’t strike me as the correct way since a deposit isn’t a receivable (and thus an asset) until an invoice is actually posted - which in my case will be weeks after a deposit has been received.
If you have any alternative procedures for posting deposits, I am happy to know.
Why is your customer paying the deposit?
Is it an advanced payment against an order?
If so you have an invoice with a milestone based payment schedule and the “deposit” is business income from the perspective of the tax authority in jurisdictions I’m aware of. As such it belongs in acounts receivable.
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In my experience the opposite is true.
If you are holding a deposit for a customer in a liability account an option would be to add a second line in the customer sales invoice with a negative amount to the liability account.
@Patch, yes, it’s an advance payment against an order. I am with @AJD on this, it’s not income because the goods haven’t been shipped yet and ownership hasn’t been transferred to the customer.
@AJD, the second line is a good suggestion. That works for me! Thank you.
Depends when the contractual commitment to purchase occurs. The invoice can be due before, during or after manufacture or delivery. As a result the purchase occurs after payment of a deposit ONLY if both parties are still free to NOT proceed with the purchase AFTER the deposit has been paid.
We are in international trade where invoices are usually issued once goods are delivered. Anything else will normally be questioned/disputed by auditors. Hence, in our case, invoicing will always occur on the day of delivery which might be months after order placement - depending on circumstances and delivery terms.
Also, deposits are - under certain circumstances - refundable and thus have to be treated as a liability.
@AJD, your suggestion works well accounting-wise. All accounts are correct. The only disadvantage is that this approach messes up the invoice reports since the invoices shown are only the balance payments.
I could solve this with a custom report, though. So unless there are any better solutions out there, your approach seems to be the best for now.
Thank you all for your help.
Consider managing two separate customer accounts:
- Deposit Account:
- Shows the amount held on behalf of the customer.
- Defines the purpose, terms, and usage of the deposit.
- Ensures no legal right to set-off.
- Operating Account:
- Tracks invoices and payments not drawn from the deposit account.
Example: Leasing agents must account for rental deposits and the interest earned for reimbursement to the tenant. The deposit should not appear in the monthly rent account. Instead, provide two statements:
- Deposit Account Statement: Details the deposit, terms, and usage.
- Operating Account Statement: Tracks monthly rent transactions.
This approach ensures clear and accurate accounting for both the consultant and the client.
@Steve_Mileman, this is already handled by the use of special accounts. You can read about them in the Guides.
I have checked how some other popular accounting/ERP systems are handling this particular business case. Those I saw post the down-payment to a dedicated account (by issuing a down-payment/Proforma invoice) which then can be applied against the commerical invoice. This is what I have done manually using a journal entry.
@Tut I am totally fine with posting manually and don’t need an automated process even though that would be perfect. Is it possible to replace the standard payment text (Journal Entry/receipt — [number] — [date]) with say the column description of the journal entry/receipt if not empty (e.g, column description — [date])? That might give some flexibility to others, as well.
In Manager issuiing a Quote is the same as a Proforma Invoice. You can rename Quote to Proforma Invoice in the Edit screen by enabling :Custom title and if this is your default you could make it a form default (at bottom of sales quote tab).
ZOHO has a similar issue. Payments made from a client’s account to a client’s credit are labeled as “Refunds.” I would prefer not to use special accounts and other work-arounds. It must surely be easy to resolve this.
In the case of receipts, you can add some of these:
- Loyalty points
- Contra-settlements
- Set-off
- Exchange
- Crypto
Frankly, why complicate matters? I suggest using “Paid” for payments and “Received” for receipts. Both generic terms would cover all the means of accepting payment and discharging a debt according to the law.
In fact, over the last few decades, laws have been updated to change the term “paid” to “discharge.” As I say, why get involved? Leave it for the operator to label the transaction beyond “Paid” and “Received.”