Customer Deposits

This article covers recording customer deposit payments. Additionally, the reporting backup for month/year end accrual entries for financial statements is discussed.

ARTICLE CONTENTS

• What is a Customer Deposit?
• Miscellaneous Receipts (aka Customer Payments)
• Marking Miscellaneous Receipts as Deposits
• Month/Year End Reporting on Customer Deposits
• Month/Year End Reporting on Customer Balances Excluding Deposits

What is a Customer Deposit?

A customer deposit is a payment from a customer received in advance of goods or services delivered. For financial statement purposes, this type of transaction is often shown as a liability on the Balance Sheet. 

In Connected, a "Miscellaneous" type Receipt is used to record a customer deposit. This could be used either as lump sum payment against any outstanding existing transactions or as a deposit against a future transaction.  

The general ledger accounts used for a Miscellaneous receipt transaction are typically:

C/R Accounts Receivable

D/R Bank

The following sections show how a customer deposit is marked and reported on for month/year end accrual entries.

Miscellaneous Receipts (aka Customer Payments)

A "Miscellaneous" type receipt in Connected is defined as a customer payment without an invoice. This type of entry can be used for several reasons:

• Small customer overpayment. Record a small amount that cannot be applied to an invoice, to be used at a later date.
• Adding a payment but not knowing which of the unpaid invoices it is to be applied to.  In this case it is being recorded so it can be deposited to the bank, knowing the application will be done later when specific invoices to be cleared are identified.  See: Applying a Credit Memo or Misc Receipt
• To record a customer deposit against an order or in general.

The following sections explain how to mark a Misc type receipt as a deposit and generate the necessary reporting for month/year end financial accounting accrual entries.

Marking Miscellaneous Receipts as Deposits

When adding or editing a Miscellaneous Receipt transaction, a "Deposit" checkbox can be selected, as shown in the following screen.

If a Miscellaneous Receipt needs transaction was posted, but the "Deposit" checkbox was missed, it can still be selected on a posted transaction. The following warning will appear when "Modify" is selected on a posted receipt. 

Click "Yes" to proceed and mark the entry as a "Deposit" by selecting the checkbox, as shown below.

NOTE: This could be applied in reverse. If a Misc receipt has been marked as a deposit and posted, by mistake, it can be updated and the Deposit checkbox unchecked in the same way.

Month/Year End Reporting on Customer Deposits

Since a "Miscellaneous" type receipt has multiple uses, as explained earlier in this article, recording customer deposits for month/year end purposes is done via a reversing journal entry, aka an accrual entry. Entries marked as "Deposits" can easily be isolated, reported on, and totalled to backup the deposits accrual journal entry.

Customer deposit (Miscellaneous Receipts marked as "Deposit") transactions can be isolated on the Connected Customer Aging. 

To find the total deposits as at a reporting period, run the Customer Aging report with the following settings.  Ensure that the "Only miscellaneous receipts that are deposits" is selected at the bottom of the report window.

The total on this report, example shown in the screen below, can be used as the backup for the accrual journal entry to record deposits. to move an amount from the Accounts Receivable control account to the Customer deposit account in the General Journal window. (It is recommended that this accrual be reversed the first day of the following period)

Sample deposit accrual entry. By selecting the "Reverse When Posted", a reversing entry will be automatically created on the first day of the following period. In the example below, the reversing entry would be created on Jan 1 2024.

NOTE: The sample entry below is meant as an example only and not meant to provide accounting advice. Please review all financial accounting entries with your internal and/or external accountant to ensure they are valid and applicable for your specific company.

Month/Year End Reporting on Customer Balances Excluding Deposits

If Deposits are being used and accounted for, then this needs to be considered when running a Customer Aging report of open customer balances. To run a Customer Aging report with all open (unpaid) customer invoices, excluding deposits, use the following report settings.