Accounting for deposits received

Newaglish

Howdy,

If I'm building apartments and I've received $1 million in deposits from hungry customers, how do I account for this in the balance sheet? Is it a liability? Deferred income?

It's probably quite straightforward but it's confusing me...

Thanks

hivizman

Newaglish wrote: »

Howdy,

If I'm building apartments and I've received $1 million in deposits from hungry customers, how do I account for this in the balance sheet? Is it a liability? Deferred income?

It's probably quite straightforward but it's confusing me...

Thanks

You show the deposits as a liability (whether or not they are refundable to the customers). As you incur costs for building the apartments, you offset the costs against the deposits, and when the costs begin to exceed the deposits the net amount is shown as an asset. You should recognise an appropriate proportion of revenues and costs in the income statement at the end of the year, according to the 'stage of completion' of the building contract, but in practice, unless the building process is spread over several years, builders are likely to recognise revenues and costs in respect of each apartment when that apartment is completed and sold. Nowadays, accounting standard setters don't like to talk about 'deferred income' - the deposits are a liability because the builder has an obligation either to build the apartments or return the deposits.