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April 27, 2009

What is the entry for the down payment from a signed contract?

A down payment received before it is earned is recorded with a debit to the current asset account Cash and a credit to the current liability account Customer Deposits.

When the contract is completed, the account Customer Deposits will be debited for the amount of the down payment, the sale will be recorded with a credit, and Cash or Accounts Receivable will be debited.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.



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Comments

14 Responses to “What is the entry for the down payment from a signed contract?”

  1. samina ali on May 4th, 2009 11:31 pm

    hello i want to newsletter if u possible

  2. Jojo on May 5th, 2009 3:27 am

    I am working in the construction company and indeed, I was erroneously recognized DP as Income instead of liability.. Thanks I found an answer so I made an adjustment… thanks

  3. Humair on May 5th, 2009 4:42 am

    Yes, down payments are as advances from customers. Customers can cancel the contract and claim their advances if terms allow and vendor has not started production against the contract.

  4. Mamuda on May 5th, 2009 7:57 am

    The advances of customers are the genuine agreement terms and if fails the contract outomatically cancel.

  5. JamesD on May 5th, 2009 9:12 am

    I’m afraid I will need clarification. Cash is being debited 2x? That doesn’t appear to track…..

  6. dorie on May 5th, 2009 9:35 am

    Cash is being debited twice because the first one is to recognize the down payment - that is Debit Cash and Credit Customer Deposit, the second entry is to recognize the completion of service - Debit Cash or Accounts Receivable if the payment is still to be received and Credit Sales.

  7. JamesD on May 5th, 2009 10:21 am

    Thanks for the clarification. I was reading the original question as a down payment in full, not a partial…..

  8. Khurram on May 5th, 2009 2:18 pm

    I am a professor of accounting in a collage and i really gets help in clearing my concepts

  9. lynda on May 6th, 2009 5:10 am

    Am a beginner in Accounting course ,& i need to learn from the sratch

  10. Deepa on May 7th, 2009 7:04 am

    This segment is very informative. However I would suggest if the accounts are shown as ledgers for easy understanding for freshers.

  11. stephen nkulo on May 7th, 2009 7:46 am

    Am so interested to Learn more of Account terms………..please send me newsletters.

  12. rahmat habib on May 12th, 2009 8:40 am

    this is very important site for the fresh and accountants and auditors also they can refresh their minds by this benificial site i am very thank full of thouse peoples who made this site for the help of humin beings.
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  13. Zeny on June 13th, 2009 8:14 am

    In Balance Sheet, where does Contingent Liablity belongs?

  14. sami on January 26th, 2010 8:07 am

    Contingent liability is not shown on the face of BS but it is disclosed by way of note to balance sheet.

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