Hi there, I’m Nick Roberts, I am an accountant who has been working in public practice for the last 12 years.
I was an early adopter of Xero in 2007, and have been working with this platform (as well as other accounting systems since). I would like to use my expertise to help people with their use of Xero and other accounting software solutions.
For this blog post I am going to cover how to treat deposits on invoices in Xero.
So you require your customers to pay a deposit upfront to secure the order, but how do you treat the deposit on the invoice in Xero so that the income is recorded in the correct period.
Unfortunately Xero does not have an automatic function to record a deposit on an invoice and record the income in different periods.
So how do you get around this issue?
How to Record Deposits.
The process involves issuing two invoices, one for the deposit when it is first required, the second when the final amount is due.
Deposit Invoice
With the deposit invoice this will be coded to prepayments, which is on your balance sheet so is not recorded as income.
Depending on whether you are registered on payments or invoice basis will decide whether you pay GST on the receipt of this deposit or whether you pay it once the sale is completed.
Recording Payment of the Deposit
The next step is to record the payment of the deposit as a prepayment.
- In the bank reconciliation screen find the deposit amount.
- Click on find and match
- Click on New Transaction
- Change the received as to prepayments
- Fill in the details making sure the contact name is the same as the deposit invoice that you created and the account is prepayments.
- Save Transaction
- Then Reconcile
Match the Prepayment to the Deposit Invoice
Find the deposit invoice in the business tab under Invoices.
Once in the invoice there should be a line at the bottom of the invoice to allocate the prepayment to the invoice click on this.
Create the Final Invoice
On completion of the project you invoice the customer the final amount, this is done by issuing an invoice for the full amount and then having a separate line recording the payment of the deposit.
Thank you for your time in reading this, if you have any questions or suggestions for future posts please contact me at nick@zero-tohero.com or on 022 405 9312.
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