A deposit invoice bills part of the price before the work starts or the goods are delivered. It names the full price, the deposit due now, the balance still to come, and the terms for a cancellation. Once the deposit is paid, the balance goes on a final invoice or onto a payment plan, with the deposit shown as already paid. In accrual books the deposit is usually held as a liability, often called customer deposits, until the work is done. For tax, the IRS generally counts an advance payment as income in the year it is received, with a limited deferral for accrual-method businesses.
What is a deposit invoice?
An invoice for part of the price, sent before the work starts or the order ships. It asks the customer to commit with money before the business commits time or materials. A second invoice, or a payment plan, collects the rest.
What should a deposit invoice include?
- The full price, so the deposit reads as a part of it.
- The deposit due now, as an amount or a percentage of the price.
- The balance still to pay, and when: on completion, on delivery, or on a schedule.
- A due date for the deposit, and what happens to the booking if it isn't paid.
- Cancellation terms: whether the deposit is refundable, and when.
How is the balance billed afterward?
Two common ways. A worked example: a $9,500 price with a $1,500 deposit.
| Step | One final invoice | Balance on a plan |
|---|---|---|
| Deposit invoice | $1,500 | $1,500 |
| After that | One invoice for $8,000 | 10 payments of $800 |
| Total | $9,500 | $9,500 |
Either way, the later invoice or schedule should show the full price, the deposit already paid, and the balance, so the customer can see the two documents add up: $1,500 + 10 × $800 = $1,500 + $8,000 = $9,500.
How does a deposit show in the books?
This depends on your accounting method, and your accountant sets it. In plain terms:
- Cash-basis books record the deposit as income when the money arrives.
- Accrual books usually record a deposit for work not yet done as a liability, often named customer deposits or unearned revenue. The business owes the work, or the money back.
- When the work is done, the deposit moves from that liability to revenue, alongside the balance invoice.
A worked example of the accrual entries for the $9,500 job:
| When | Debit | Credit |
|---|---|---|
| Deposit received | Cash $1,500 | Customer deposits $1,500 |
| Work done and balance invoiced | Customer deposits $1,500 and accounts receivable $8,000 | Revenue $9,500 |
| Balance paid | Cash $8,000 | Accounts receivable $8,000 |
Each row balances: $1,500 = $1,500, then $1,500 + $8,000 = $9,500, then $8,000 = $8,000.
When is a deposit taxable income?
The IRS's Publication 538 says that, generally, you report an advance payment for goods, services or other items as income in the year you receive it. If you use an accrual method, you can elect to postpone including a qualifying advance payment until the next year, but not beyond it. The deferral has conditions, such as a portion of the payment being earned in a later tax year. Ask your tax adviser how it applies to you. General information, not tax advice.
- IRS Publication 538, Accounting Periods and Methods: Advance Payments
Every figure on this page was checked against these sources on Oct 6, 2026. General information, not legal or tax advice.