Record Interior Design Client Deposits in QuickBooks

An interior designer records a client deposit as unearned revenue, a liability account, not as income, and moves it to income only once the design work is performed or the furniture is delivered. Trade purchases, meaning the furniture, fixtures, and materials you buy through your accounts to resell to a client, are booked as an asset (inventory or a job cost in progress) until the sale happens. Whether you invoice the client the full retail price or only your markup depends on the agent versus principal control test, and that determination is worth a conversation with your CPA before you set up your chart of accounts.

Step one: recording the client deposit as a liability, not income

When a client hands over a retainer to start a project, that money is not yours yet. You have not designed anything and you have not delivered any product. Booking it straight to income overstates your profit for the period, which can mean paying tax on cash you may still have to spend on the client's behalf. The correct entry treats the deposit as a liability, since you owe the client either the work or a refund.

In QuickBooks, this means creating an Other Current Liability account called Client Deposits (or Unearned Revenue), then recording the incoming payment against that account instead of an income account. A sales receipt or a bank deposit both work, as long as the offsetting line hits the liability account rather than a service or product income line.

Step two: paying a vendor deposit to place a custom order

Once the design plan is approved, you often send a deposit, commonly 50 percent, to a workroom or furniture vendor to place a custom order. That payment is not an expense yet either, because you have not received the goods and the vendor still owes you delivery. It belongs in an asset account, sometimes labeled Vendor Deposits or Deposits Paid.

Many firms use purchase orders to keep this organized across multiple vendors and multiple client jobs at once, and it helps to track every purchase order to your trade vendors so you know exactly what is on order, what has been paid as a deposit, and what balance is still due on delivery. Without that discipline it is easy to lose track of which deposits have already been applied and which are still open.

Step three: delivery, invoicing, and applying the deposit

When the goods arrive and are installed, the transaction finally becomes real revenue and real cost of goods sold. Say the designer invoices the client $12,000 for the FF&E at retail, the trade cost from the vendor was $8,000, and there is a separate $2,500 design fee for the work itself. Assuming the designer is acting as principal (more on that below), the entries look like this once the invoice posts.

Then the $10,000 client deposit collected earlier gets applied against that invoice, reducing what the client still owes and moving the liability into earned income.

The client now owes $4,500 in cash, the $10,000 deposit has been converted from a liability into earned revenue, and the $8,000 vendor deposit posted earlier has been relieved against cost of goods sold once the vendor delivered the finished piece. Every step balances on its own, which is the easiest way to check your work at each stage rather than waiting until month end to reconcile a pile of transactions.

Agent versus principal: why it changes the numbers

The example above assumes the designer is acting as a principal, meaning she controls the furniture before it reaches the client, carries the inventory risk, and sets her own price rather than passing along a fixed vendor price with a disclosed fee. Under the ASC 606 control test, a principal recognizes the full $12,000 as product income and the vendor cost as cost of goods sold. An agent, by contrast, never controls the goods and only earns a commission or markup, so she would record just the net fee, say $4,000, as income rather than $12,000 of gross revenue.

Indicators that point toward principal treatment include taking on responsibility for the acceptability and quality of the piece, holding inventory risk before it transfers to the client, and having discretion over the price charged. Indicators that point toward agent treatment include a client contracting directly with the vendor, the designer earning only a disclosed markup or commission, and the vendor bearing the risk if something is damaged in transit. Firms sometimes operate as principal on furniture and agent on trade services like drapery workrooms, so the classification can vary by category of purchase within the same practice. This is a facts-and-circumstances call, and it is worth reviewing with your CPA rather than guessing, since it changes both your reported revenue and, in some states, your sales tax exposure.

Keeping income accounts separate

Lump everything into one income account and you lose the ability to see whether your design fees are actually profitable versus your product markups. A cleaner setup separates Design Fee Income (hourly or flat fees for the creative work), Product Income (furniture, fixtures, and materials resold to clients), and a Reimbursable Expenses account for pass-through costs like shipping, delivery, or rush fees that you bill back at cost. Splitting these out also makes it far easier to price future projects, because you can see your actual margin on product sales instead of a blended number that hides a thin markup behind a strong design fee.

Installers, workrooms, and 1099 reporting

Installers, upholsterers, and custom workrooms are usually independent contractors rather than employees, so track their payments through Accounts Payable using a vendor record rather than payroll. For payments made on or after January 1, 2026, the 1099-NEC filing threshold is $2,000 per contractor per calendar year, so any workroom or installer you pay at or above that amount needs a completed W-9 on file and a 1099-NEC issued by the end of January. Getting the W-9 signed before the first payment goes out saves a scramble at tax time.

Getting these transactions from your bank statement into QuickBooks

Most of the friction in interior design bookkeeping does not come from knowing the correct entry, it comes from getting dozens of vendor deposits, client payments, and shipping charges out of a PDF bank or credit card statement and into QuickBooks without retyping each line. Our PDF to QBO converter turns a downloaded statement into a clean .qbo file you can bring straight into QuickBooks Online or Desktop, which keeps the transaction dates and amounts accurate so you are not reconciling from memory. If you are setting up QuickBooks Online specifically, see our guide on how to import a bank statement into QuickBooks Online for the exact steps. For a walkthrough built around the deposit, cost, and fee structure described above, our page on how to get a bank statement into QuickBooks for interior designers covers the full workflow from statement download to reconciled books.

Frequently asked questions

Is a client deposit for an interior design project taxable income?

Not right away. A deposit is unearned revenue, a liability, until you perform the work or deliver the furniture. Once the project is complete or the goods ship, you recognize the matching portion as income, which is when it becomes taxable revenue for that period.

Should I record furniture I buy for a client as inventory or an expense?

Record it as an asset, either inventory or a job cost in progress, when you pay the vendor deposit. It only moves to cost of goods sold once you deliver the piece and invoice the client, so your books show a true profit on the sale rather than an expense with no matching income.

Do I have to charge sales tax on furniture I mark up for clients?

In most states, yes, if you are acting as principal and reselling tangible goods, sales tax applies to the retail price you charge. Rules vary by state and by whether you are treated as agent or principal, so confirm the specific requirement with your state's department of revenue or your CPA.

How do I handle a client deposit that gets refunded instead of used?

Since the deposit was never recorded as income, refunding it is straightforward: debit the Client Deposits liability account and credit cash for the refunded amount. No income statement adjustment is needed because the money was never counted as earned revenue in the first place.

Getting the deposit, vendor cost, and final invoice sequence right keeps your interior design firm's financial statements honest about what you have actually earned versus what you are still holding on a client's behalf. Once the accounting logic is in place, the remaining work is mostly data entry, and that is where a fast, accurate bank statement conversion saves the hours you would rather spend on the next project.