From the course: Introduction to Bookkeeping for Small Business Owners

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Customer prepayments

Customer prepayments

From the course: Introduction to Bookkeeping for Small Business Owners

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Customer prepayments

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- Are you an owner of a business that collects prepayments or retainers from clients for products or services to be delivered at a later date, such as construction, law, or manufacturing? Whether the client chooses to prepay for a better price or you require a down payment, there's a very specific way this collection of funds must be entered to avoid overstating income in the period. In this lesson, I'm going to demonstrate how to properly account for client deposits prior to services being provided and how to apply the prepayment to an invoice so you can accurately post the receipt of funds and capture the revenue when it's earned. According to accounting principles, you can't count money received as income until you've provided the products or services, and money received ahead of time is owed back to the client if they're not provided. This means the money you receive is a liability and not revenue. For this lesson…

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