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).
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FAQs
Are Deposits Considered Assets or Liabilities?
Deposits can be either assets or liabilities, depending on the nature of the transaction. Deposits paid by a business (e.g., rent or supplier deposits) are considered assets because they represent amounts recoverable in the future. Deposits received from customers are liabilities, as they represent obligations to deliver goods, services, or refunds.