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Hello Bardwell,
I love these situations. First thing is to note that any deposit (refundable or not) is a liability, until it is earned, which should go on the balance sheet.
So, you have a client who bought $100 worth of frozen food and you have charged him $5 for the refundable containers. In total, you received $105. The entry should be behind the scenes:
Debit AR or bank $105
Credit Sales $100
Credit Refundable deposit $5
When you pay the client, the entry will be
Debit Refundable deposit $5
Credit Bank or AR $5
But it gets complicated with the balance sheet. The easiest option would be to use a sales account and the debit the sales account when you pay the deposit back. At the end of the fiscal year, talk to your CPA and transfer the remaining balance in your sales account to the balance sheet.
Entries with this option will be:
Debit AR or bank $105
Credit Sales $100
Credit Refundable deposit $5 (this is a sales account)
When you pay the deposit back:
Debit Refundable deposit $5
Credit bank $5
I like this option because you are working with the bank numbers making the reconciliation much easier for you.
Thanks
Prachi Joshi