Understanding Deposits
Concept
This is not a step-by-step guideline, but an explanation of how customer deposits work in Trash Flow. A deposit is related to a payment—the customer is giving you money—but is not quite the same thing. Instead of payment for services rendered you might think of a deposit as either
- a refundable security deposit for equipment, service, etc. or
- a prepayment that you are holding on to until service has been done.
These distinctions are not important everywhere or for all users. Your accountant may ask you to distinguish between deposits and payments more carefully. An advance payment would be considered income. Deposits in accounting are considered a liability, since it's money you have for services you haven't completed. Trash Flow allows you to refund the deposit back to the customer or convert some or all of that deposit into a payment. Once a deposit is applied (converted to a payment) it then becomes income.
If you charge tax to your customers it's important to note that deposits are not taxed in and of themselves; if the customer gives you $100 and you can later refund it you will not be withholding tax when you return the money to the customer If you convert some or all of the deposit into a payment, however, Trash Flow will automatically calculate how much of the payment needs to go towards tax. This means that tax will not be taken out of the deposit until weeks or months after you first get the money; please call Trash Flow technical support if you have any questions about this.
See Also