You're right, Jack. A deposit should be treated as a liability because it's an amount that you owe the service to the client, and it's not earned income until the work is completed. I'll discuss more about this below and guide you through the steps.

To start, please note that a deposit on an invoice is considered income because it is subtracted from the total amount to calculate the remaining balance due, whereas the Deposit remains a liability until the completion of the work.

Additionally, please note that only selected or limited users currently have the option to apply deposits to estimates. However, this feature may be more broadly available soon.

To record a deposit on an estimate, follow these steps:

1. Navigate to the Estimates page.
2. Locate the specific estimate you want to apply the deposit to.
3. In the Action column, click on the More actions dropdown and select Receive deposit.
4. Input the payment date and the deposit amount.
5. (Optional) Include the payment method and the reference number.
6. Click Save.

For more detailed information, refer to this guide: Request a customer deposit on an estimate in QBO.

If you don't have the option to receive the deposit on the estimate, you can manually record your deposits from your customers. Here's how:

Step 1: Create a liability account to keep track of the retainers from your customers. For proper setup, please consult with your accountant.

1. Go to the Chart of Accounts page.
2. Click New.
3. Choose Other Current Liabilities from the Account Type dropdown menu.
4. Select Trust Accounts - Liabilities from the Detail Type dropdown menu.
5. Enter a Name for the account (e.g., Trust Liabilities) or use your preferred name.
6. Pick a start date for tracking your finances from this account in QuickBooks from the dropdown menu.
7. Click Save and Close.

Step 2: Create a retainer item for the deposit or retainer payment

1. Go to the Products and Services page.
2. Select New.
3. In the Product/Service information panel, choose Service.
4. Enter a name for the new product or service item (for example, Retainer).
5. From the Income account ▼ dropdown menu, select the liability account created in Step 1.
6. Select Save and Close.

For subsequent steps (3, 4, and 5), you can refer to this article: Record a retainer or deposit.

Moreover, I’ve included a resource that can assist you in converting your estimate directly into an invoice, helping you save time and maintain accurate records: Convert an estimate into an invoice.

Furthermore, consider checking out our QuickBooks Live Expert Assisted team. They can assist you with your estimates, deposits, and transaction sorting.

If you have any further questions about applying deposits to estimates, feel free to leave a reply below. The Community is here to provide support.