QuickBooks 2005: The Missing Manual

Working with Deposits, Down Payments, and Retainers

Deposits, down payments, and retainers are all prepayments: money that a customer gives you that you haven't actually earned. For example, a customer might give you a down payment to reserve a spot in your busy schedule. Until you perform services or deliver products to earn that money, that down payment is more like a loan from the customer than it is income.

Receiving money for something you didn't do feels good, but don't make the mistake of considering that money as yours. Prepayments belong to your customers until you earn them, and, they require a bit more care than payments you receive for completed work and delivered products. This section explains how to manage all the intricacies of customer prepayments.

Setting Up QuickBooks for Prepayments

If you accept prepayments of any kind, you'll need an account in your Chart of Accounts to keep that money separate from your income.You'll also need an item that you can add to your invoices to deduct prepayments from what your customers owe.

• Prepayment account. If your customer gives you money and you don't do anything to earn it, chances are excellent that your customer is going to ask for the money back. Because unearned money from a customer is like a loan, create an Other Current Liability account in your Chart of Accounts (see Chapter 2) to hold prepayments. Call it something like Customer Prepayments.

• Prepayment item. If you accept prepayments for services, create prepayment ...