Customer Deposit Bookkeeping Question

by MKMK
(HK)

Customer Deposit

Customer Deposit

Our company rents out some store rooms to our customers. The customers are required to place some deposits upon commencement of the lease and are expected to get back the deposits upon expiry of lease. How do I record these deposits?

In some cases, the customers may use part of the deposits to offset the rental. In this case, how can I record these transactions?

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Aug 23, 2023
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starstarstarstarstar 		Rental Income Security Deposits
by: BB

Recording the deposits and handling the offset against rentals can be done in the following way:

When Receiving the Deposit:

Debit (increase) a Cash or Bank account (asset) for the amount received.

Credit (increase) a Security Deposits Received account (liability) for the same amount.

This recognizes the obligation to return the deposit at the end of the lease.
When Offset Against Rental:

Debit (decrease) the Security Deposits Received account (liability) for the amount used.

Credit (decrease) the Accounts Receivable or Rental Income account (asset/revenue) for the same amount.

This applies the deposit against the rental, reducing the amount owed or recognizing it as revenue.

At Expiry of Lease (if deposit is returned):

Debit (decrease) the Security Deposits Received account (liability) for the remaining deposit.

Credit (decrease) the Cash or Bank account (asset) for the same amount.

This records the return of the deposit to the customer.

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Customer Deposit Account

For a deposit in a customer deposit account what account would be debited and what account would be credited?

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Aug 24, 2023
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starstarstarstarstar 		Customer Deposit Account Entry
by: BB

For recording a deposit in a customer deposit account, the typical accounting entry would be:

Debit (increase) the Customer Deposit Account:

This is a liability account showing that you owe services or products to the customer or will need to return the deposit at some point.

Credit (increase) the Cash or Bank Account: This reflects that the company has received money that will have to be either returned to the customer or applied to future purchases.

So, the journal entry would look like this:

Debit: Customer Deposit Account (Liability)

Credit: Cash or Bank Account (Asset)

This recognizes the obligation to the customer and records the receipt of the funds.

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Depositing a Check That Needs to Be Split 4 Ways

by Diana
(Glenwood Springs, CO USA)

My husband is in a band. I have a check for $400.00 that I need to deposit, then split with the 3 other band members. How do I record & write check so that we show only $100.00 in income & not $400.00?

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Aug 24, 2023
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starstarstarstarstar 		Payments To Band Members
by: BB

In a situation where your husband's band received a check for $400 and it needs to be split evenly among four members, you can record the transaction in a way that reflects only the $100 share for your husband.

Here's how you might do it:

Deposit the Check: Deposit the entire $400 check into the bank account.

Record the Income: Record $100 as your husband's income and the remaining $300 as a liability to be paid to the other band members.

Write the Checks: Write checks to the other band members for $100 each, and record these as a reduction of the liability.

Here's a step-by-step breakdown of the accounting entries:

Debit: Bank Account $400 (Increase in cash)

Credit: Income Account $100 (Your husband's share of income)

Credit: Liability to Band Members $300 (Liability to the other members)

(When writing checks to other band members)

Debit: Liability to Band Members $300 (Reducing the liability)

Credit: Bank Account $300 (Decreasing cash)

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Deposits For New Assets

I wanted to clarify the proper way to post the deposits.

I am dealing with purchasing a new asset for a small corporation. The asset had to be ordered in advance and a deposit is required up front. Deposit was made in December 2022 and the asset will not be delivered until June 2023 (possession will be sometime in June 2023).

In this case, should I set up a new account for the asset and post the deposit to the asset account or should I set up a new account for prepaid deposits and post the deposits to that account?

Thank you for your assistance. Ann Marie

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Oct 10, 2023
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starstarstarstarstar 		Posting Asset Account Deposits
by: BB

Hi Ann Marie, your situation is quite common in the business world, especially when dealing with high-value assets that require a lead time for delivery. Here's how I would approach it:

Two Main Options

1. #Prepaid Deposit Account: One way to handle this is by setting up an account specifically for "Prepaid Deposits." You would credit your cash or bank account and debit this new Prepaid Deposits account. This method keeps the deposit separate and easily identifiable until the asset arrives.

2. #Asset Account: Alternatively, you could create a new asset account for the item being purchased and post the deposit there. However, the asset isn't in your possession yet, so it can't technically start depreciating. Posting the deposit to the asset account may not accurately reflect the current state of your finances.

In my experience, it's often cleaner to go with the first option by creating a "Prepaid Deposits" account. Then, when the asset is finally delivered in June 2023, you can move the amount from the Prepaid Deposits to the asset's actual account. This provides a clearer paper trail and allows for better tracking.

Once you take possession of the asset, you can then move the deposit from the "Prepaid Deposits" account to the asset's account and begin its depreciation from that point.

By taking this route, you're not just making it easier for yourself but also ensuring that your financial statements are as accurate as possible.

Hope this helps you make an informed decision on how to post deposits for a new asset!

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Old Deposit That Never Cleared

by Katrina Misthos
(San Francisco)

I have to deposits from previous years that have never cleared. I need to close the book for this year how do I get rid of them? Thanks

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Oct 10, 2023
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starstarstarstarstar 		Void The Deposit
by: BB

Old deposits that never cleared can certainly muddy the waters when you're trying to close your books. This is a situation that needs to be tackled cautiously to ensure accuracy in your records. Here's how to go about it:

#Consideration Steps:

1. #Revisit the Deposits: Double-check to make sure these deposits were indeed never processed or cleared. You don't want to make an adjustment only to find out there was an error in your records.

2. #Contact the Bank: Sometimes banks can provide information that you may not be aware of. They can confirm whether the deposits cleared and perhaps didn't get recorded in your system.

#Options for Removal:

1. #Void the Deposit: If the deposits indeed never cleared and there's no chance of them doing so in the future, you can void them in your accounting software, essentially canceling them out.

2. #Journal Entry: Create a journal entry to remove the deposits from your bank account in the books. You'll debit your cash or bank account and credit an income or other relevant account, effectively zeroing out the deposit.

Option 1 (voiding the deposit) is cleaner if the deposit is genuinely erroneous or obsolete. This makes it simpler for anyone reviewing your accounts to understand what happened without needing to trace back through journal entries.

Remember, if these deposits have tax implications or if you're not sure how to categorize them, consulting with an accounting professional is often the safest bet.

Closing the books with lingering, uncleared deposits can be stressful, but with due diligence, you can resolve this issue and move forward.

Hope this helps you clear up those old deposits and close your books for the year with confidence!

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Quickbooks Deposits

by mmd
(Kingwood, TX)

When an owner puts a cash deposit from his own funds into his business account, how do you record that?
I show the Deposit:

From: "Owner"
Account Code: "Owner Draw: Expense

Is this correct or should there be an Income column for this type of transaction?

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Oct 10, 2023
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starstarstarstarstar 		Owner's Cash Contribution
by: BB

The situation you're describing is quite common in small businesses and startups, where the owner often infuses personal cash into the business to keep things rolling. But it's crucial to record it accurately in your bookkeeping for both legal and tax purposes.

#How to Record the Cash Deposit

When an owner contributes personal funds to the business, this is not an "Expense" or "Income" for the business. Rather, it's an "Owner's Contribution" or "Owner's Equity." You should have a separate equity account in your chart of accounts for such transactions.

Here's how it should look:

- **Debit**: Bank Account (Cash)
- **Credit**: Owner's Equity Account

#Why It's Important

1. **Clarifies Ownership**: This helps clearly define what belongs to the business and what belongs to you, the owner.

2. **Tax Implications**: Incorrectly labeling these as expenses or income could result in inaccurate tax filings.

#What I've Also Learned

If you categorize these transactions under "Owner Draw: Expense," it could misrepresent your company's actual operating expenses and might create confusion during audits or when applying for business credit.

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Security Deposits

What type of account are security deposits

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Aug 23, 2023
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starstarstarstarstar 		Security Deposit Liability Account
by: BB

Security deposits are typically recorded as a liability account in the financial statements of the entity receiving the deposit. This is because the money received as a security deposit is not earned by the entity; it's held to secure an agreement or performance of some obligation, such as renting property, equipment, or services. When the entity holding the deposit meets the terms of the agreement, the deposit may need to be returned, so it remains a liability until that point.

If you are the party providing the security deposit, it would be recorded as an asset on your balance sheet, since you have the right to receive this amount back under the terms of the agreement.

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