Deposits definition
/What is the Deposits Account?
Deposits is a current liability account in the general ledger, in which is stored the amount of funds paid by customers in advance of a product or service delivery. These funds are essentially down payments. When a customer payment is instead treated as a security deposit, the account may instead be named security deposits, in order to more clearly differentiate the nature of the liability.
Example of a Customer Deposit
As an example of a deposit, a company may require a large deposit from a customer before it begins work on a highly customized product. Otherwise, the seller is at risk of loss if the customer cancels its order prior to delivery. The company accounts for this deposit as a debit to the cash account and a credit to the customer deposits liability account. Once the order has been fulfilled, the company records a debit to the customer deposits liability account (thereby flushing out the liability), and a credit to the revenue account (to record a sale).