A customer paid a deposit or retainer before the work was done — how do I record it, and how do I apply it to the invoice later?

Money taken before the work is done is owed to the customer, not earned yet

The article defines unearned revenue as money received from a customer for work not yet performed, essentially a prepayment for goods or services to be delivered later. (jurisdiction: United States (publisher is a US CPE/CPA-oriented accounting reference; the article text itself names no jurisdiction), entity_scope: the seller/recipient of a customer prepayment, generally, accounting_basis: accrual (implied by the article's double-entry treatment; the article does not say))

“Unearned revenue is money received from a customer for work that has not yet been performed. It is essentially a prepayment for goods or services that will be delivered at a later date.”

The article states that unearned revenue is a liability of the party receiving the payment, and that the initial entry is a debit to cash and a credit to the unearned revenue account. (jurisdiction: United States (publisher is a US CPE/CPA-oriented accounting reference; the article text itself names no jurisdiction), entity_scope: the recipient of a customer prepayment, accounting_basis: accrual double-entry bookkeeping as described by the article)

“Unearned revenue is a liability for the recipient of the payment, so the initial entry is a debit to the cash account and a credit to the unearned revenue account.”

The article states that the event converting the balance into revenue is the company earning it: as revenue is earned, the unearned revenue account balance is reduced by a debit and the revenue account is increased by a credit. (jurisdiction: United States (publisher is a US CPE/CPA-oriented accounting reference; the article text itself names no jurisdiction), entity_scope: a company holding unearned revenue, accounting_basis: accrual double-entry bookkeeping as described by the article)

“As a company earns the revenue, it reduces the balance in the unearned revenue account (with a debit) and increases the balance in the revenue account (with a credit).”

Zoho Books' help page states that the advance payment (retainer) amount collected is not income but a liability to the company. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: companies collecting an advance payment or retainer for products sold or services rendered, platform: Zoho Books, platform_edition: US-EN help edition (no version or date shown), conditions: applies to the advance payment/retainer amount described in the preceding sentence; stated by product help documentation, not by an accounting standard)

“This amount collected will not be an income but a liability to the company.”

Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference, official platform documentation.

How the payment is classified and carried until it is earned, and how cash-basis books differ

Partly established. Established: how a customer payment received before performance is classified (S01, S02, S04); how that payment is carried on the books (S02); what event causes it to be recognised as revenue (S03). Missing: how that treatment differs on cash-basis books, where income timing follows the receipt of the money.

Required authority: authoritative professional or accounting standard. Highest achieved: high quality professional secondary reference, official platform documentation.

Recording the receipt so it stays attached to the customer and, on job work, to the job

See The article states that unearned revenue is a liability of the party receiving the payment, and that the initial entry is a debit to cash and a credit to the unearned revenue account.

In Zoho Books, a retainer can be invoiced to the customer using the Retainer Invoice module. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organisations using the Retainer Invoice module, platform: Zoho Books, platform_edition: US-EN help edition (no version or date shown), conditions: stated as a capability ('can be'), not a requirement)

“This retainer can be invoiced to your customer using the Retainer Invoice module in Zoho Books.”

Where projects are managed for customers, advance payment for those projects can be collected by raising retainer invoices, tying the advance to the project. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations managing projects for customers, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: the user manages Projects for customers)

“If you manage Projects for your customers, you can collect advance payment for those projects by raising retainer invoices.”

After a project retainer invoice is completed and saved, payment can be recorded against that retainer invoice. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations creating retainer invoices from Projects, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: retainer invoice created from Time Tracking > Projects for a selected project)

“Fill in the details of the retainer invoice and save it. After this, you can record payment for this retainer invoice.”

Required authority: authoritative professional or accounting standard, official platform documentation. Highest achieved: high quality professional secondary reference, official platform documentation.

What the accounting system does with a deposit or retainer

See In Zoho Books, a retainer can be invoiced to the customer using the Retainer Invoice module.

In Zoho Books, where retainer invoices have been created for a customer and payment recorded against them, the user can apply those retainers to that same customer's outstanding invoices. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations using the Retainer Invoices module, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: retainer invoice created for the customer; payment recorded against the retainer invoice; applied to invoices of that particular customer)

“If you have created retainer invoices for your customer, and recorded payment for them, you can apply these retainers to the particular customer’s outstanding invoices.”

See Where projects are managed for customers, advance payment for those projects can be collected by raising retainer invoices, tying the advance to the project.

The retainer amount can be split across the customer's different pending invoices rather than being applied to a single invoice. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations using the Retainer Invoices module, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: invoices must be pending invoices of the same customer)

“You can split the retainer amount among the different pending invoices of the customer.”

Not established from an authoritative source.

Applying the held amount to the invoice so the customer is not billed twice

See In Zoho Books, where retainer invoices have been created for a customer and payment recorded against them, the user can apply those retainers to that same customer's outstanding invoices.

A retainer can be applied either partially or fully against the invoices Zoho Books displays. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations using the Retainer Invoices module, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: applies to the invoices displayed on the Apply to Invoice screen)

“You can apply the retainer partially or fully on the invoices displayed.”

The Invoice Balance field is described as the final amount to be paid after advance payments have been deducted. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations using the Retainer Invoices module, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: field shown when applying a retainer to invoices)

“Invoice Balance The final amount to be paid after deducting advance payments.”

See The retainer amount can be split across the customer's different pending invoices rather than being applied to a single invoice.

If the job is cancelled and the money goes back

The help page introduces refunds with an illustrative case: where an advance payment was collected for a project and the project is then cancelled, the retainer amount will have to be refunded to the customer. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations that collected an advance for a project, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: stated as an illustrative scenario ("Let's say"), not a stated rule; project is cancelled)

“Let’s say you collect an advance payment from a customer for a project, but due to various reasons, the project gets cancelled. In such a case, you will have to refund the retainer amount back to the customer.”

Where a payment has been recorded against a retainer invoice, that amount can be refunded within Zoho Books. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations using the Retainer Invoices module, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: a payment has been recorded for the retainer invoice; performed via Sales > Retainer Invoices > More > Refund)

“If you have recorded a payment for a retainer invoice, you can refund that amount in Zoho Books.”

A retainer refund records a From Account identifying the account the refund was paid from, selected from cash accounts or bank accounts in the banking module. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations recording retainer refunds, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: field of the retainer refund form)

“From Account Select the account from where the refund was made, either from cash accounts or bank accounts in the banking module.”

Recording a refund results in the corresponding adjustments being made in the retainer invoice. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations recording retainer refunds, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: refund recorded against the retainer invoice)

“Once the refund is recorded, the adjustments will be made in the retainer invoice.”

Partly established. Established: returning the money to the customer (S12, S13). Missing: what that does to the obligation; how the customer's account ends at nil.

Required authority: authoritative professional or accounting standard. Highest achieved: official platform documentation.

Recording a refunded deposit and a deposit retained under the agreement

Not established from an authoritative source.

Required authority: authoritative professional or accounting standard. Highest achieved: official platform documentation.

Before treating a kept deposit as earned

Not established from an authoritative source.

What the customer agreement has to say for a deposit to be non-refundable

Not established from an authoritative source.

How the picture differs on cash-basis books

Not established from an authoritative source.

Required authority: authoritative professional or accounting standard. Highest achieved: primary regulator or government.

Seeing which deposits are still held and which should already have been released

The Retainer Amount Available field shows the retainer still available after the Balance has been applied to an invoice, i.e. the remaining unapplied retainer is tracked on screen. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations using the Retainer Invoices module, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: field shown when applying a retainer to invoices)

“Retainer Amount Available Available retainer after the Balance is applied to an invoices.”

When a customer has unused retainers, the invoice page displays a "Retainers Available" notification showing the retainer amount collected from that customer, with an Apply Now action beneath it. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations using the Retainer Invoices module, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: customer has unused retainers; viewing an invoice whose payment is due, or a new invoice saved as draft)

“If the customer has unused retainers, a notification will be displayed in the invoice page as Retainers Available with the retainer amount that was collected from the customer. Click Apply Now below it.”

The Retainer Invoice Details report summarises, for a selected date range, the retainer invoices created, unused retainers, and the invoices the retainers were applied to; it can be sorted by retainer invoice status. (jurisdiction: United States (Zoho Books US-EN help edition), entity_scope: Zoho Books organizations using the Retainer Invoices module, platform: Zoho Books, platform_edition: US (US-EN) help edition, conditions: report covers a selected date range)

“Generate a report showing a quick summary of the retainer invoices you created, unused retainers and the invoices to which they were applied for a selected date range. The report can be sorted by the status of the retainer invoice.”

Required authority: high quality professional secondary reference, official platform documentation. Highest achieved: official platform documentation.

Tracking, ageing and reviewing outstanding customer deposits

Partly established. Established: how outstanding customer deposits are tracked (S16, S17, S19); how outstanding customer deposits are reviewed (S19). Missing: how outstanding customer deposits are aged.

Required authority: high quality professional secondary reference. Highest achieved: official platform documentation.

Sales tax on the deposit is a separate, jurisdiction-set question

Gross proceeds of sales and gross income must be included in the Washington excise tax return for the period in which the value proceeds or accrues to the taxpayer. (jurisdiction: Washington State, USA, entity_scope: taxpayers filing Washington State excise tax returns, effective_from: 2007-09-17)

“Gross proceeds of sales and gross income shall be included in the excise tax return for the period in which the value proceeds or accrues to the taxpayer.”

The other time listed at which value accrues on the accrual basis is the time the taxpayer, in accord with the system of accounting regularly employed, enters as a charge against the purchaser, customer or client the amount of the consideration agreed upon — and this applies whether that amount is payable immediately or at a definitely determined future time. (jurisdiction: Washington State, USA, entity_scope: taxpayers whose Washington excise tax returns are made on the accrual basis, accounting_basis: accrual basis (excise tax reporting), effective_from: 2007-09-17, conditions: charge entered in accord with the system of accounting regularly employed)

“(ii) In accord with the system of accounting regularly employed, enters as a charge against the purchaser, customer, or client the amount of the consideration agreed upon, whether payable immediately or at a definitely determined future time.”

On the accrual basis, amounts actually received do not constitute value accruing to the taxpayer in the period of receipt if the value accrues to the taxpayer during another period. (jurisdiction: Washington State, USA, entity_scope: taxpayers whose Washington excise tax returns are made on the accrual basis, accounting_basis: accrual basis (excise tax reporting), effective_from: 2007-09-17, conditions: value accrues to the taxpayer during another period)

“Amounts actually received do not constitute value accruing to the taxpayer in the period in which received if the value accrues to the taxpayer during another period.”

When Washington excise tax returns are made on the cash receipts and disbursements basis, value proceeds to the taxpayer at the time the taxpayer receives the payment, either actually or constructively. (jurisdiction: Washington State, USA, entity_scope: taxpayers whose Washington excise tax returns are made on the cash receipts and disbursements basis, accounting_basis: cash receipts and disbursements basis (excise tax reporting), effective_from: 2007-09-17)

“When returns are made upon cash receipts and disbursements basis, value proceeds to a taxpayer at the time the taxpayer receives the payment, either actually or constructively.”

Not established from an authoritative source.

When tax attaches to an advance receipt — one state's rule, as an illustration of what to establish

See Gross proceeds of sales and gross income must be included in the Washington excise tax return for the period in which the value proceeds or accrues to the taxpayer.

See The other time listed at which value accrues on the accrual basis is the time the taxpayer, in accord with the system of accounting regularly employed, enters as a charge against the purchaser, customer or client the amount of the consideration agreed upon — and this applies whether that amount is payable immediately or at a definitely determined future time.

See On the accrual basis, amounts actually received do not constitute value accruing to the taxpayer in the period of receipt if the value accrues to the taxpayer during another period.

See When Washington excise tax returns are made on the cash receipts and disbursements basis, value proceeds to the taxpayer at the time the taxpayer receives the payment, either actually or constructively.

Not established from an authoritative source.