Customer deposits: carry the advance until the promised goods transfer
On 28 September a customer pays a £4,000 deposit on a £10,000 order. The goods will not be ready until November. The bank balance is up, sales have marked the order as won, and someone asks whether the deposit can count as September revenue. For a seller reporting under full IFRS Accounting Standards, the answer in this hypothetical case is no. September revenue from the order is nil. The £4,000 is an obligation to deliver, carried as a liability until control of the goods passes.
What IFRS 15 requires
IFRS 15 recognises revenue as promised goods or services transfer to the customer. The steps are: identify the contract and its performance obligations, determine the transaction price, allocate it, and recognise revenue as each obligation is satisfied, at a point in time or over time.
Paragraph 106 covers money received early. If the customer pays, or payment is unconditionally due, before the goods or services transfer, the seller presents a contract liability when the payment is made or falls due, whichever is earlier. Paragraph B44 adds that the liability is released to revenue when the obligation is satisfied. Paragraphs 31 to 39 decide when that happens.
This is full IFRS 15. It is not a tax rule, and IFRS for SMEs or UK GAAP reporters need their own check.
Sources and context, checked :
Check the facts before calling it a deposit
A payment labelled deposit is not automatically a contract liability. The accounting owner should assess these first:
- Whether a contract meeting IFRS 15's criteria exists; paragraphs 9 and 15 to 16 cover receipts when it does not
- Refundable security deposits, refund obligations and cancellation rights
- More than one performance obligation, or a significant financing component
- Non-refundable upfront fees: paragraphs B48 to B51 require an assessment, and the label does not show that anything has transferred
Follow the £4,000 to revenue
Assume the contract meets IFRS 15's recognition criteria and has one performance obligation, satisfied at a point in time when control of all the goods transfers on 10 November, with fixed consideration and no financing component. On that date the remaining £6,000 becomes an unconditional receivable. VAT, other taxes, costs and foreign currency are excluded.
| Event | Debit | Credit |
|---|---|---|
| 28 September: advance received | Bank £4,000 | Contract liability £4,000 |
| 10 November: goods transfer | Contract liability £4,000; trade receivable £6,000 | Revenue £10,000 |
| Remaining balance collected | Bank £6,000 | Trade receivable £6,000 |
Check the entries
The transfer entry balances at £10,000, with £4,000 + £6,000 of debits against £10,000 of revenue. It releases the liability instead of recording the £4,000 receipt a second time. After the final payment, cash collected totals £10,000 and the receivable and contract liability are both nil.
Neither the final invoice nor completion of all the work is a universal trigger for revenue. Here the trigger is the transfer of control; in other contracts revenue can arise before final payment, or over time.
Keep a schedule that reconciles to the ledger
We suggest a contract-by-contract schedule: customer and order reference, receipt or due date, amount, promised goods or services, the accounting owner's transfer assessment, evidence needed, revenue released and closing liability. Count each obligation once, at the earlier of payment or unconditional due date; a later receipt settling an already recorded receivable is not another addition. Roll it forward each month:
| Month | Opening liability | New advances | Released to revenue | Closing liability |
|---|---|---|---|---|
| September | 0 | 4,000 | 0 | 4,000 |
| October | 4,000 | 0 | 0 | 4,000 |
| November | 4,000 | 0 | 4,000 | 0 |
Evidence at each step
Any other movement, such as a refund, needs its own justification on the schedule. At the September close, attach the order and the receipt. At the November release, attach the evidence that control transferred on 10 November. Review overdue or cancelled orders separately and leave their treatment to the accounting owner; an old balance on its own does not show that anything was delivered.