Why Deposit Invoicing Can Be Tricky for Accounting

After a lengthy negotiation process, your prospect has finally determined what they want for their custom order. They want specific material upgrades. They want a custom look and feel. They want multiple items, and they want those items shipped to different addresses across the U.S.

In short, it’s a complex order with complex pricing — and you want to ensure that you'll get paid, so you decide to ask for a deposit up front.

Easy peasy? Not quite. As it turns out, deposit invoicing can bring up a few accounting questions.

The Problem: GAAP and deposits

If you follow generally accepted accounting practices (GAAP) and its accrual-based accounting requirements, you know that when you send an invoice, the full amount invoiced shows up on your balance sheet as an official accounts receivable asset. But if you send a full invoice only to collect a deposit, it may be a long time before you expect to receive the remainder of the outstanding balance.

This delay can negatively impact your accounts receivable turnover ratio and incorrectly signal to potential investors that your company is inefficient in collecting debts or that your customers have poor credit quality.

The Solution: Deposit invoices in Sage 100

Deposit invoices in Sage 100 are a great way to solve this issue. In essence, a deposit invoice creates a smaller, related invoice that you can use to collect a deposit without having to add the full Sales Order invoice amount to your AR and balance sheet immediately.

And, if you perform the process the right way, your Sage 100 system will automatically apply the deposit to the sale when you invoice the Sales Order.

This article shows you, step by step, how to properly send an invoice for deposit in Sage 100, so you can correctly account for deposits and save time.

How to Send an Invoice for a Deposit in Sage 100

Overview of the process

To begin, you will debit receivables and credit a deposit account when the invoice is generated. Then, when the deposit is received, you will debit cash and credit your receivables. Finally, you will invoice your debit deposit and credit revenue.

Now, here is how you do that.

1. Create a miscellaneous charge for the deposit in Common Information / Miscellaneous Item Maintenance.

2. Create an invoice for the deposit in Sage 100.

We recommend changing the PO Number to the Customer PO that you will be creating the deposit for. This will make it clear that this is a deposit invoice, not a full invoice.

As you can see in our example, we filled in “Deposit Invoice for PO 12345” in the Cust PO field.

(Also, note that on this screen, the invoice number is INV 107480. We’ll reference this invoice number later.)

3. Enter the line item for the deposit.

We recommend referencing the PO in the extended description of the item. Be as clear as you can at every step, because this will help you find the deposit invoice when you need it.

4. Print and update the invoice.

This will debit Accounts Receivable and credit Customer Deposits in your General Ledger. The invoice will show as open on the Receivable reports.

5. At this time, or when the invoice is paid in Sales Order Entry, enter the deposit amount to the Totals screen.

To enter the deposit amount properly, you will want to update 3 sections within the Totals tab:

For Deposit Payment Type, enter how the deposit is expected to be paid. In this example, it will be paid by check.
For Check Number, enter the deposit invoice number that you printed in step 4. In this case, it was INV 107480.
For Deposit Amount, enter the full deposit amount to be paid.

Remember, you can complete this step immediately when the deposit invoice is created, or you can wait until the deposit is paid.

When the Sales Order is invoiced, the deposit will be applied to the invoice.

At this point, you will:

6. Print the invoice and Sales Journal, and update the General Ledger.

The deposit amount will appear on the Sales Journal and in the General Ledger. As you can see, this debits accounts receivable and customer deposits and credits Sales in the General Ledger.

Conclusion

Sending an invoice for deposits in Sage 100 provides a fast and convenient way for you to charge a deposit. By following the step-by-step approach in this article, your business will have the opportunity to collect a deposit without having the accounting headache of burdening your balance sheet with a full invoice amount that you don’t expect to close out for a while.

Next Steps

If you have questions about sending an invoice for a deposit in Sage 100, Ardent Consulting is at your service. Our team of experts is ready and eager to help you navigate your system challenges and optimize your business’s potential. We prioritize your business’s health and are committed to supporting your journey every step of the way.