Customer Deposit Tutorial

Setup

How to Create a New Credit Term

1. Navigate to Main Menu > Setup > Accounting > Credit Terms (tab).

2. Click Add Credit Term (button).

3. Fill in fields as needed (e.g. Description and Display as = 50% Deposit, Days from = 0, Invoice = checked, Statement = unchecked).

4. Click Save (button).

How to Allocate a Credit Term to a Customer

1. Navigate to Main Menu > Office > Customers.

2. Click View (button) to display a list of Customers.

3. Double-click any customer to open.

4. Click Accounting (tab).

5. Select the applicable Credit Term from the dropdown list next to Credit Terms.

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Option A: Credit Customer Accounts with the Deposit

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Procedure:

▶ A Pro-forma Invoice or Quotation is issued with a request for a deposit.

▶ The deposit is credited to the customer's account.

Advantages of this method: 

▶ Full transparency: Both the organisation and the customer can keep track of the deposits.

▶ Aligns with IFRS 15, recognising revenue only when performance obligations are met.

▶ VAT is not due until an invoice is issued.

Disadvantages of this method:

▶ It is difficult to distinguish between Customer Deposits and Customer Payments or Overpayments.

▶ If a customer has multiple orders, it is difficult to track which deposits belong to which orders.

▶ It may understate the value of the Customer Age Analysis for lending purposes.

▶ Requesting the deposit, and following up on it, is a manual process.

Choose this option if:

▶ Deposits are not a regular part of the organisation's trading activities.

▶ The Customer Age Analysis is not tied to credit facilities.

▶ The organisation is small (e.g. only has one bookkeeper who is knowledgeable about the business).

How to Manually Enter a Deposit

1. Navigate to the ledger (e.g. Main Menu > Accounting > Ledger).

2. Click the arrow on New (button) > Mouse-over Customer Transactions > click Customer Receipts (CR).

3. Enter the Date and Period as per the Bank Statement.

4. Customer = Customer Account.

5. Bank = Bank Account into which deposit was paid.

6. Enter the Amount and select No VAT.

7. Leave the receipt unallocated. 

8. Change the Status of the transaction to Complete.

9. Click Save (button).

How to Allocate Deposits to Invoices

1. Navigate to the ledger (e.g. Main Menu > Accounting > Ledger).

2. Set the Date on the left.

3. Filter = Customer Account.

4. Account = Select the Customer who paid the deposit.

5. Click View (button).

6. Double click to open any unallocated Receipts in the Outstanding column and allocate them to an invoice:

   1. Change the Status of the transaction to Pending.

   2. Click Save (button).

   3. On the bottom right in the Outstanding section, click the invoice the deposit must be allocated to.

   4. Click Allocate (button).

   5. Change the Status of the transaction to Complete.

   6. Click Save (button).

ℹ️ With Option A, Customer Invoices are entered as they normally would be entered. 

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Option B: Use Control Accounts to Manage Customer Deposits

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Procedure:

▶ A Pro-forma Invoice or Quotation is issued with a request for a deposit.

▶ The deposit is credited to a Control Account (e.g. Customer Deposits Held).

▶ Once an Invoice is generated, the deposit is transferred to the customer's account.

Advantages of this method: 

▶ The organisation can keep track of its deposits.

▶ Deposits can be clearly distinguished from Customer Payments and Overpayments.

▶ Allows the organisation to keep a separate Bank Account and reconcile it with deposits held.

▶ Interest can be paid on the deposits (e.g. if the money is held in an interest-bearing bank account).

▶ The organisation's Customer Age Analysis correctly reflects what customers owe.

▶ Aligns with IFRS 15, recognising revenue only when performance obligations are met.

▶ VAT is not due until an invoice is issued.

Disadvantages of this method:

▶ Requesting the deposit, and following up on it, is a manual process.

▶ Extra accounting transactions are needed to enter and transfer the deposits.

▶ The control account must be reconciled.

Choose this option if:

▶ The Customer Age Analysis is tied to credit facilities.

▶ Interest must be paid on deposits.

▶ Accounts are audited by external auditors.

▶ Deposits are refundable.

How to Create a Deposit Control Account

1. Navigate to Main Menu > Setup > Accounting > Accounts (tab).

2. Click Add Account (button) and enter the details as follows:

   1. Name = Customer Deposits Held.

   2. Code = Leave blank (or allocate a number if account numbers are used).

   3. Category = Current Liabilities.

   4. Leave the other fields blank.

3. Optionally create individual accounts under Customer Deposits Held.

   1. Create a new account as per Step 2, but name the account after the customer (e.g. Customer Deposit: Amalgamated Industries). 

   2. Right-click the line, select Nest Under and select Customer Deposits Held.

• Note: Creating individual accounts for each customer makes deposits easier to manage and reconcile.

How to Create an Entry Type for Customer Deposits

1. Navigate to Main Menu > Setup > Transaction > Transaction Types (tab).

2. Click New (button).

   1. Fill in the details as follows:

      1. Description = Transfer Customer Deposits.

      2. Code = TR-CD.

   2. Below the Items & Inventory Heading:

      1. Select Default Item next to Item Type.

   3. Below the Accounting heading:

      1. Check the Accounting checkbox.

      2. VAT Type = No VAT.

      3. Dr Category = Current Liabilities.

      4. Dr Account = Customer Deposit Control Account.

         • Note: If subaccounts are used, leave the Dr Account field blank.

      5. Cr Category = Receivables.

3. Navigate to User Access (Main Menu > Setup > Settings > Users (tab)).

4. Select a username under users.

5. Click Actions (button) next to Transaction Access > Add/Remove Modules.

6. On the popup: move the newly created transaction type from the Available to the Selected section.

7. Click OK (button) on the popup.

8. Click Close (button) on the popup.

9. Find the added transaction type on the alphabetic list of transaction types.

10. Edit the access rights as needed.

11. Click Save (button).

12. Restart the application.

How to Record Customer Deposits Received

1. Navigate to the Ledger (e.g. Main Menu > Accounting > Ledger).

2. Click the arrow on New (button) > Other Income (INC).

3. Click Add Item (button).

4. Click Menu (button) > Enable Debit & Credit.

5. Select the Date.

6. Bank (Dr) (bar) = Select the Bank into which the deposit was made.

7. Other Income (Cr) = Select Customer Deposit Held - Current Liabilities.

8. Amount = Type the Deposit amount received.

9. VAT = Select No VAT.

10. Type details of the deposit in the Reference and Note fields.

11. Overtype Default in the Description field with the details of the deposit.

12. Click Done (button).

How to Transfer the Deposit to the Customer Account

1. Navigate to the Ledger (e.g. Main Menu > Accounting > Ledger).

2. Click the arrow on New (button) > Mouse-over Customer Transactions > Click Transfer Customer Deposits (TR-CD).

3. Select the Date.

4. Customer = Select the Customer Account from the dropdown list.

5. Type in the Amount in the field provided.

6. Leave the default VAT Type (No VAT).

7. Below the line:

   1. Description: Overtype Default with details of the deposit.

   2. Set Debit = Opening Balance Control Account.

8. Navigate to the Outstanding (section) and allocate the amount to the appropriate Customer Invoice.

9. Click Save (button).

Method 1: How to Record Interest Received on the Deposit Account

ℹ️ Use Method if only some customers receive interest and the organisation receives the rest of the interest. 

In South Africa there is no VAT on interest received or paid. Other countries may have different rules.

1. Navigate to the Ledger (e.g. Main Menu > Accounting > Ledger).

2. Click the arrow on the New (button) > Other Income (INC).

3. Click Add Item (button).

4. Click Menu (button) > Enable Debit & Credit.

5. Select the Date.

6. Bank (Dr) = Select the Bank into which the deposit was made.

7. Other Income (Cr) = Select Interest Income

8. Amount = Enter the Interest amount received as per the bank statement.

9. VAT = Select No VAT.

10. Type the details of the deposit in the Reference and Note fields.

11. Overtype Default in the Description field with the details of the deposit.

12. Click Done (button).

• Note: Interest can also be captured when doing a Bank Import.

Method 1: How to Pay Interest to a Customer

1. Navigate to the Ledger (e.g. Main Menu > Accounting > Ledger).

2. Select the arrow on the New (button) > mouse-over Customer Transactions > click Transfer Customer Deposits (TR-CD).

3. Select the Date.

4. Customer = Select the Customer from the dropdown list.

5. Type in the Amount in the field provided. 

6. Leave the default VAT Type (No VAT).

7. Below the line:

   1. Description = Overtype Default with details of the deposit.

   2. Set Debit = Interest Income.

8. Navigate to the Outstanding (section) and allocate the amount to the applicable Customer Invoice.

9. Click Save (button).

Method 2: How to Record Interest Received on the Deposit Account

ℹ️ Use Method 2 if the deposits are held in trust and all the interest must be distributed to the customers. 

In South Africa, there is no VAT on interest received or paid. Other countries may have different rules.

1. Divide the Interest Received from the Bank among the Customer Deposit Accounts in proportion to their deposits.

   • Note: Total Interest Received divided by Total Deposits Held multiplied by the Customer's Deposit Held equals the Customer's Share of Interest Received.

2. Navigate to the Ledger (e.g. Main Menu > Accounting > Ledger).

3. Click the arrow on the New (button) > General Journal (GJ).

4. Select the Date.

5. Enter the Amount as per Step 1 and accept the default No VAT.

6. Navigate to the line item and enter the fields as follows:

   • Debit = Select the Bank account from which the interest was received. 

   • Credit = Select the applicable Customer Deposit Account.

7. Click Done (button).

Method 2: How to Pay Interest to a Customer

1. Navigate to the Ledger (e.g. Main Menu > Accounting > Ledger).

2. Click the arrow on New (button) > Mouse-over Customer Transactions > Click Transfer Customer Deposits (TR-CD).

   1. • Note: The name of your transaction type and code may differ. 

3. Select the Date.

4. Customer = Select the Customer from the dropdown list.

5. Type in the Amount in the field provided. 

6. Leave the default VAT Type (No VAT).

7. Below the line:

   1. Description = Overtype Default with details of the deposit.

   2. Debit = Customer Deposit Control Account.

8. Navigate to the Outstanding (section) and allocate the amount to the appropriate Customer Invoice.

9. Click Save (button).

ℹ️ With Option B, Customer Invoices and Receipts are entered according to standard procedures.

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Option C: Raise an Invoice for the Deposit

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Procedure:

▶ A Customer Invoice is raised for the deposit or the full job when the Quotation is accepted.

▶ The deposit is credited to the customer's account and allocated to the Invoice.

Advantages of this method: 

▶ No need to keep track of deposits.

▶ Complies with Payment-Based VAT (VAT is due or claimable when a payment takes place, not when an invoice is generated).

Disadvantages of this method:

▶ Income is recognised before the job is done:

   ▶ Which might not comply with IFRS 15,

   ▶ It may create a mismatch between income and expenditure,

   ▶ Gross margins could be overstated.

▶ It may require multiple invoices for the same job.

Choose this option if:

▶ The organisation is registered for payments-based VAT.

▶ There is a very small lead time between the deposit being raised and the job being done.

How to Create Customer Invoices for Deposits

1. Navigate to Main Menu > Workflow > Customer Invoices.

2. Click New (button).

3. Select the Customer and fill in the header information:

   1. Change the Date, if necessary.

   2. Contact = Select a Contact from the dropdown list.

   3. Rep = Select a Rep from the dropdown list.

   4. Enter a Reference and Note in the fields provided.

   5. Category = Select a Category from the dropdown list next to Category.

   6. Order No = Type an Order Number.

   7. Terms = Select the applicable Terms from the dropdown list.

   8. Delivery Address = Select a Delivery Address from the dropdown list.

4. Create the items as follows:

   1. Click Menu (button) on the top row > Enable Debit and Credit.

   2. Click Custom (button) above the line items.

   3. Enter a Description for the line item.

   4. Credit = Select an income account (e.g. Deposits Received)

   5. VAT Type = Select the applicable VAT option.

   6. Enter the deposit Amount under Fixed Price.

5. Change the Status of the invoice to Complete.

6. Click Save (button).

   2. • Note: If you made a mistake, right-click the item and select Delete Item from the context menu.

How to Create Customer Invoices where Deposits Were Previously Invoiced

ℹ️ This process ensures that costing reports are accurate. 

For example, the customer pays a 50% deposit on a R10 000 order. The entries will look like this:

1. Customer Account: DR R5 000

1. Deposits Received: CR R5 000 

2a. Customer Account: DR 10 000

2a. Income Received:  CR 10 000

2b. Customer Account: CR  5 000 (reverses entry 1)

2b. Deposits Received: DR 5 000 (reverses entry 1)

1. Create a Customer Invoice for the full amount as you normally would.

2. Once all the line items are created, Add a Custom Item:

   1. Enter a Description (e.g. Less Deposit Paid).

   2. Select the same Income Account as you selected for the deposit (e.g. Deposits Received).

   3. Select the applicable VAT Type.

   4. Enter a Fixed Price as a negative amount (to reduce the invoice by the deposit amount).

3. Change the Status of the invoice to Complete.

4. Click Save (button).

ℹ️ With Option C, Customer Receipts are entered according to standard procedures, regardless of whether the receipt was for the deposit or the final payment.

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Option D: Invoice the Customer and Request a Deposit

Procedure:

▶ A Customer Invoice is raised for the full job when the Quotation is accepted.

▶ The deposit is credited to the customer's account and allocated to the Invoice.

▶ When the job is complete, the customer is sent a Statement which shows the outstanding balance.

Advantages of this method: 

▶ Full transparency: Both the organisation and the customer can keep track of the deposits.

Disadvantages of this method:

▶ Income is recognised before the job is done:

  ▶ Which might not comply with IFRS 15,

  ▶ It may create a mismatch between income and expenditure,

  ▶ Gross margins could be overstated.

▶ If the organisation is registered for Invoice-based VAT, VAT becomes due on the full invoice once it is issued.

Choose this option if:

▶ The organisation is registered for payments-based VAT.

▶ There is a very small lead time between the deposit being raised and the job being done.

How to Display a Deposit Requirement on an Invoice

ℹ️ This process is used to allocate credit terms to a customer. Once allocated, the credit terms are displayed on quotations if the default quotation templates are used.

1. Navigate to Customers (e.g. Main Menu > Office > Customers).

2. Click View (button).

3. Double click to open a Customer Account.

4. Click Accounting (tab).

5. Select the appropriate Credit Terms from the dropdown list.

   • Note: If there is no term that indicates the deposit requirement, you can create one as explained under Setup at the top of this page.

6. Click Save (button).

How to Create Customer Invoice

1. Create a Customer Invoice as per standard procedures.

2. Indicate the deposit requirement by selecting the terms on the invoice.

   • Note: If the invoice is linked to a Sales Order, leave the Status of the Sales Order as Active (instead of marking it Complete).

ℹ️ With Option D, Customer Receipts are entered according to standard procedures, regardless of whether the receipt was for the deposit or the final payment.

How to Display the Deposit Payment to the Customer

1. Record and allocate the deposit payment to the Customer Invoice as per standard procedures.

2. Navigate to Accounting > Customer Age Analysis.

3. Click View (button).

4. Click the applicable Customer.

5. Click Output (button) > Email / Print / Preview.

Related Topics

• Process Guide: Customer Deposits