Sales · Level: Exam specials
Journal entry: Deposit received from a customer
The customer pays before delivery. Until we deliver, we owe the goods: payments on account, a liability.
Worked example
Wright plc pays a deposit of £15,500.00 plus 20% VAT by bank transfer for a delivery next month.
Correct journal entry
Bank £18,600.00 / Payments on account £15,500.00, Output VAT £3,100.00
Debit
Bank£18,600.00
Credit
Payments on account£15,500.00
Output VAT£3,100.00
Why?
- Bank: asset increases → debit
- Payments on account: liability increases → credit
- Output VAT: liability increases → credit
Calculation
- VAT: 20% of £15,500.00 = £3,100.00
- Gross amount: £15,500.00 + £3,100.00 = £18,600.00
Typical mistake
Booking the deposit as Sales although nothing has been delivered.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
Green Retail Ltd pays a deposit of £20,000.00 plus 20% VAT by bank transfer for a delivery next month.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for deposit received from a customer?
Example: Bank £18,600.00 / Payments on account £15,500.00, Output VAT £3,100.00.
How do I recognise this case?
The customer pays before delivery. Until we deliver, we owe the goods: payments on account, a liability.
What is the typical mistake?
Booking the deposit as Sales although nothing has been delivered.