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How do I record a customer deposit before the work is finished?

Short answer

A customer payment received before you earn it may be a liability rather than immediate revenue under accrual accounting. Track the deposit separately and recognise revenue as the agreed goods or services are delivered.

Detailed answer

Follow the contract, not just the bank receipt

Review what the customer has paid for, when you must perform and whether the amount is refundable. Under accrual reporting, an advance commonly remains in a customer-deposits or deferred-revenue account until performance occurs. Tax and cash-basis rules can differ, and receiving a deposit may trigger an indirect-tax obligation before accounting revenue is recognised.

Reconcile each customer's balance

Keep a schedule showing receipts, work delivered, invoices applied and refunds. Match the final invoice against the deposit without recording the same cash twice. Review outstanding advances at month-end and investigate old balances. Ask your accountant to confirm the policy for retainers, subscriptions or long-term contracts, where the timing may be more complicated.

Country differences: rules, thresholds and terminology differ between the US, UK, Australia and Canada. Check the official source for your country below.

Official sources

Published by Expert Bookkeeping Services · Last updated 2026-11-01. General information only — confirm specifics for your situation with a qualified adviser.

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