As a general accounting method (especially if you’re an Accrual basis)*, you would record Prepaid Unearned Income from Customer to a Current Liability account. See the screenshot below for how to create this account in your Chart of accounts.
![](https://newqbo.com/wp-content/uploads/2020/02/prepaid-unearned-income.png)
You’ve two ways of handling this, select one which works best for your business.
Option 1:
If you’re depositing this money in (and not creating Invoice), deposit to this account. And when ready to recognize income, write a Journal Entry (credit Income/Revenue account and debit Prepaid Unearned Income account).
![](https://i2.wp.com/newqbo.com/wp-content/uploads/2020/02/Deposit-from-customer.png?fit=580%2C219)
![](https://newqbo.com/wp-content/uploads/2020/02/JE-to-clear-deposit-to-income.png)
Option 2:
If you’re creating an Invoice for this money in, you will need to add a new Product/Service item for this prepaid unearned income item. For the Income account field on the Product/Service information screen, you would select this Prepaid Unearned Income account. Create an Invoice using this item once to record prepaid deposit and create a 2nd Zero Invoice when ready to recognize Income (positive item) and clear Prepaid Unearned Income (negative item).
* If you’re on Cash basis accounting method, consult with your Accountant.
![](https://newqbo.com/wp-content/uploads/2020/02/deposit-item.png)
![](https://i1.wp.com/newqbo.com/wp-content/uploads/2020/02/Invoice-for-deposit.png?fit=580%2C228)
![](https://i0.wp.com/newqbo.com/wp-content/uploads/2020/02/2ndinvoice-toclear-deposit-and-recognize-income.png?fit=580%2C227)
![](https://i2.wp.com/newqbo.com/wp-content/uploads/2020/02/customer-transaction-list.png?fit=580%2C241)