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Customer Pre-Payments and Deposits

What is a Pre-payment

In some instances a Customer may be required to make a partial payment for a product or service, in advance of receiving the product or service. This is a deposit, and is sometimes called a Pre-payment.

The remaining payment will be made on completion of the service or delivery of the product.

When receiving a deposit, the money is strictly neither owned by you or owed to you, since the product or service has not yet been delivered. This payment has to be recorded as a liability, until the service/product has been delivered.

How to process a Deposit

Step 1

Create a Current Liability account called ‘Customer Deposits‘.

Step 2

Create a Charge Item called ‘Customer Deposit‘, and assign the Item’s income account to the Customer Deposits account created in step 1.

Step 3

When you need to record a deposit first create a Cash Sale with a Customer Deposit line item for the required amount. By using the Cash Sale Document you can create multiple Customer Deposits if required. Moreover they can also be easily refunded.

Step 4

When the Invoice for the Sale is issued add a Customer Deposit line item with a negative amount. This not only ensures the underlying accounting is correct but also allows the Customer to see the deposit on the printed invoice.

To issue a receipt for the Deposit, create a specific Document Print Template for Customer Deposits, then you can either mail or print the receipt as required.