How to Account for Deposits

Accounting for deposits varies depending on accounting method.

Bank deposits are a normal part of everyday operations for most businesses and should be recorded in the accounting general ledger immediately after deposited with the bank so that the general ledger checking account will reflect an accurate bank balance. Normal business deposits may include money received for sales revenue, payments on accounts and payments for deposits. The general ledger accounts used to record deposits vary depending on whether your company uses the cash or accrual method of accounting.

Instructions

Accrual Method

1. Break out the total amount of the deposit into the different categories of receipt, such as sales revenue, accounts receivable payments and deposits. The total of all the individual categories must equal the total amount of the deposit.

2. Record the entire amount of the deposit as an increase to the checking account.

3. Record sales revenue receipts as an increase to the appropriate sales revenue account. For example, computer repair services are recorded to the Computer Repair income account.

4. Record accounts receivable receipts as a decrease to the accounts receivable account. This entry reduces the amount of receivables due from customers.

5. Record deposits as an increase to the appropriate deposits account. For example, a deposit for equipment rental would be recorded to the Equipment Deposit account.

Cash Method

1. Break out the total amount of the deposit into the different categories of receipt, such as sales revenue, accounts receivable payments and deposits. The total of all the individual categories must equal the total amount of the deposit.

2. Record the entire amount of the deposit as an increase to the checking accounting.

3. Record the entire amount of sales revenue and accounts receivable receipts to the appropriate sales revenue account. The cash method of accounting does not maintain an accounts receivable balance on the general ledger, even if customer accounts are allowed. Instead, all income is recognized when payment is received rather than at the time of the sale.

4. Record deposits as an increase to the appropriate deposits account. For example, a deposit for equipment rental would be recorded to the Equipment Deposit account.

Tips & Warnings

• If you are not certain how to properly account for deposits, hire an accounting professional to assist you with your accounting records.

References

• "Principles of Accounting"; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991