When we receive an order for a custom cabinet job, we require a 50% "payment" to begin work, with the balance due upon shipment (we do not install). In order to indicate to my customers how much is due and when it is expected we need to create an invoice. My question is, is this billing for a "deposit" a sale? We use the accrual accounting system which means if we use an invoice to request a payment Quickbooks records this as a sale (realized income) on the date the invoice is created which is the date that we receive the order. The problem is we have not built the job yet, however the minute we receive the order we buy materials and begin the engineering and output to the shop. I feel that this a non-refundable payment to begin manufacturing a custom product and therefore it is a "sale". One example for food for thought, when someone goes to Home Depot to buy cabinets the pay 100% before they leave the store and then wait 6 weeks for their cabinets. A little light here would be really helpful.
(Business and Management Forum)
From contributor T:
Sounds like you are taking a non-refundable deposit against a sales order, you should not be invoicing until:
A. If you are doing milestone payments beyond the 50% down prior to completion you would do a progress billing (with invoice).
B. You complete the project and invoice with the expectation of payment prior to, at, or some period of time after delivery/pickup depending on the customer.
You should not be creating a true invoice until you ship or are ready to ship.
1. Set up a progress invoice - top right corner of your invoice screen with the drop down menu. In the quantity field you will enter the percent of your 'deposit' for each line item. A sale will be created for only the amount of that invoice. Update quantity field for consecutive invoices through completion. This way you will pay sales tax incrementally based on your invoices.
2. As contributor W said - set up a liability account for 'retainers' or something to that effect. In your items list, set up a service item (non-taxable) that links to that account. When you invoice for a deposit (don't use sales receipt), use that non taxable item - you will have an invoice that is not recorded as a tax sale. At the end of the project create an invoice for the full amount, then use the same non-taxable item as before with a negative dollar amount to reflect the payments you have received (this moves the amount back out of the liability account). In this case your sales tax will all be recorded at the end of your project.
Note: on larger projects that may stretch out over a long period of time, I prefer method # 1, this way you pay your sales tax as you go - instead of having a large sales tax liability as you hit the end of the project.
If you were to work on a single project for letís say six months - using method # 2 - your P&L will show five months of no sales, then one really good month. This may or may not be a concern to you, depending on your volume and frequency of completed projects.
We do monthly WIP estimates to keep our books in line if we're not billing on a project at the end of every month. So our P&L is accurate from month to month. The WIP amount is entered as a general journal entry at the end of the month, then a reverse entry of the same amount is entered at the beginning of the month.