Glossary · Sales and receivables
Customer deposit
A customer deposit is money a customer pays before the work is done or the goods are delivered. Because it has not been earned yet, it is recorded as a liability, not income. When the work is invoiced, the deposit is applied to the invoice and becomes income at that point.
Glossary / Customer deposit · Also called Retainer, Advance payment, Down payment
How it works
Deposits protect a business from customers who cancel after materials are bought or a date is booked. The accounting rule is simple: money you might have to give back, or have not yet earned, is something you owe, so it belongs on the balance sheet as a liability.
Recording a deposit as income is a common mistake. It overstates this month's profit, understates next month's, and makes the profit and loss useless for comparing periods. On cash-basis books, some small businesses do count it as received income, which is one reason to talk to your accountant about which basis you use.
Worked example: A caterer's 30% deposit
A caterer books a wedding for $10,000 and takes a 30% deposit of $3,000 in May. The wedding is in August.
In May, cash goes up $3,000 and the Customer Deposits liability goes up $3,000. Income is unchanged. In August the caterer invoices $10,000. The $3,000 deposit is applied, so the customer owes $7,000. Income of $10,000 appears in August, the month the work was done.
| Date | Cash | Customer Deposits | Income |
|---|---|---|---|
| May: deposit | +$3,000 | +$3,000 | $0 |
| August: invoice and apply | −$3,000 | +$10,000 | |
| August: final payment | +$7,000 |
In AcboBooks
In AcboBooks, a customer deposit is held in a Customer Deposits liability account, not income and not accounts receivable. Applying it to an invoice pays the invoice with no new cash, debiting Customer Deposits and crediting accounts receivable.
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Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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