A deposit represents more than cash already received
A business holding customer deposits may owe future goods, services, or refunds. During a sale, the parties must decide which obligations transfer and how the price reflects them. The owner should not assume cash collected before closing is freely distributable because it is already in the bank.
Prepare a customer-level schedule of deposits and advance payments. Record the contract, amount received, work completed, remaining performance, refund terms, and legal owner of the obligation. Reconcile the schedule with accounting records and customer communications. A general-ledger balance alone may hide canceled orders, disputed amounts, or deposits applied incorrectly.
A hypothetical unfinished project pool
Suppose a contractor holds $250,000 of customer deposits for projects transferring to the buyer. The estimated remaining cost to complete the work is $190,000. The buyer proposes a $250,000 price adjustment while the seller expects an adjustment based only on completion cost. Those positions reflect different commercial assumptions that need negotiation and legal clarity.
The example does not prescribe the correct adjustment or tax treatment. It shows why deposit face value, remaining cost, expected margin, and refund exposure should be separate measures. Ask the deal accountant to explain how the agreement uses each measure and whether the same amount also enters working capital elsewhere.
Separate book timing from tax history
The seller’s tax accounting may differ from financial-statement revenue recognition. Ask the preparer to identify how the deposits were previously reported and what the actual sale arrangement requires. Do not assume the accounting liability establishes an identical future tax deduction or income exclusion.
Provide prior returns, accounting-method information, contracts, and records of performance. The advisor should analyze the transfer of obligations and consideration under the applicable rules. A closing entry labeled deferred revenue is a starting fact, not a complete tax conclusion. Preserve the explanation used in the sale projection.
Control refunds and customer communication
Specify who handles refunds, credits, disputed quality, and work performed before closing. Obtain counsel’s review of assignments and any consent requirements. Customers should receive consistent instructions about whom to contact and pay. A buyer and seller can otherwise both believe the other is responsible for the same unfinished project.
Keep a dispute register with the contract reference, facts, amount, owner, and next action. If the seller pays a refund after closing, connect it to the agreement and obtain reviewed accounting treatment. Do not automatically offset the amount against a seller note or earnout unless the documents permit that mechanism.
Make the closing schedule traceable
Use the agreed customer list as the opening balance. Track transferred obligations, retained obligations, completed work, refunds, and adjustments. Preserve original estimates when final amounts replace them. This allows the owner to explain why a later settlement changed the proceeds model.
Ask the transaction team to reconcile deposits with cash, receivables, work in progress, and purchase-price definitions. A deposit can be counted twice if one provision adjusts working capital and another separately deducts assumed obligations. The contract’s actual mechanics require review, rather than a comparison of account names.
Keep post-closing evidence available
Retain the contracts and performance records needed to resolve claims while respecting confidentiality and data-transfer rules. Assign a contact responsible for questions after the owner leaves operations. If the buyer controls the customer system, establish the seller’s permitted information-delivery process before access ends.
At each reporting review, provide actual settlements and payments to the preparer. Update the household cash plan for retained exposures. The goal is a sale that transfers operating responsibility as intended and a proceeds calculation that recognizes obligations attached to customer money. Clear schedules protect both customer continuity and the owner’s understanding of cash actually available after closing.
Test a cancellation scenario
Ask what happens if a transferring customer cancels immediately after closing. Identify whether the buyer owes a refund, the seller indemnifies it, or another reviewed term applies. Model a plausible cancellation amount so the owner understands how deposit-related claims could reduce an escrow release or create another cash payment.
Where work is partly completed, preserve job-cost and progress evidence at the cutoff date. That information can support a later disagreement about who performed the services and which party bears the cost. A deposit schedule without performance records may not be enough to resolve a contested project.
Sources & further reading
Consult the original guidance and its effective dates. These references support the educational discussion; their application depends on the specific facts.