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What to do with customer deposits in Quickbooks

Posted by Rebecca Tervo in Uncategorized on March 10, 2010 | 3 responses   

Here’s a more complicated Quickbooks question I received at my February Lunch and Learn:

Company: rents vacation real estate on a weekly basis
Deposits: come from customer as long as a year ahead of time to hold the rental

Question: How does a Michigan based company (this activity is a sales taxable item in MI) hold onto the deposit without it showing up as a taxable item on sales tax reports?

Follow up Question: How does the deposit item get used once the customer is fully billed in Quickbooks?

Here’s the shortest answer I came up with:

Once again, if you have any Quickbooks questions that would make great blog posts, please use the contact page to get in touch with me! Thanks.

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  • Crystal

    Hello — I appreciate the tutorial on handling weekly rental deposits in QB. My issue is that when I invoice for the 50% rental deposit (sometimes up to a year in advance), receive payment, and then issue the credit memo — the deposit is treated as rental income and it does not show up on the BS as a current liability. It shouldn’t be income until the guests show up for the rental or are no longer entitled to a refund of their deposit. How can I get it to show as a liability and not income?

  • http://www.accounting-wizard.com Lawrence Fox

    Rebecca:

    I’ve been using a similar method for several years for an event management/production company here.

    I use a slightly different approach–I don’t create a credit note and apply it, though.

    Instead I’ve created a second Item List called “DepApplied” with a description of “Less: Deposit Received” which posts to the same Deposits liability account.

    I mirror the first step in your solution.

    When the rental happens, invoice the customer in full and then add one more line to the invoice showing the deposit and enter a negative number and flag this also as non-taxable.

    Sometimes, I’ll edit the line on the invoice and add the date when the deposit was paid.

    The G/L gets cleared properly, taxes are calculated on the total and at the time of the event and you save a step.

  • http://www.tervofinancial.com Rebecca Tervo

    Thanks so much for sharing your method with us, Lawrence! There are several methods to achieve different things in QuickBooks. That’s why it’s helpful to search for QuickBooks blogs and participate in forums when trying to figure out how to get something done:)