Handling Deposits and Prepayments for Roofing Jobs in Spokane WA

Roofing contractors in Spokane face a unique financial cycle. Projects often involve large deposits, progress payments, and final balances that do not align neatly with payroll, supplier invoices, or Washington state tax rules. Without proper bookkeeping, deposits can distort income, create cash flow stress, and even cause costly tax errors.

This article explains how Spokane roofing businesses can handle deposits and prepayments correctly. You will learn the difference between income and liabilities, how Washington state taxes apply, and why tracking deposits properly helps avoid financial headaches during both busy summers and slower winters.

Why deposits are common in roofing

Roofing projects require significant upfront costs. Contractors purchase shingles, underlayment, fasteners, safety equipment, and sometimes rent dumpsters or lifts before work begins. Collecting a deposit helps cover those costs and ensures homeowners or property managers are committed to the project. In Spokane, deposits also help offset seasonal risks such as spring rains or early winter snow that can delay start dates and push revenue further down the calendar.

The accounting rule: deposits are liabilities, not income

A deposit is money you receive before you have earned it. Until you complete the work, that money legally belongs to the customer. In bookkeeping, deposits are recorded as a liability on your balance sheet “Unearned Revenue” or “Customer Deposits.”

When the job progresses, the deposit is moved from liability to income. For example:

• At the time of deposit:
  Debit: Cash
  Credit: Customer Deposits (liability)
• When work is completed or a milestone is met:
  Debit: Customer Deposits
  Credit: Roofing Income (revenue)

This system prevents overstatement of income in peak months and avoids mismatches when expenses occur weeks or months after deposits were collected.

Washington state rules on deposits and sales tax

Washington treats construction services as retail services when performed for consumers, meaning they are subject to both retail sales tax and retailing Business & Occupation (B&O) tax. However, sales tax is generally due when payment is received, including deposits. This makes deposit handling more complex than in many states.

For Spokane roofers:

• If you collect a $5,000 deposit on a $20,000 reroof, sales tax on that $5,000 is owed in the reporting period when you received it, even though the job is not complete.
• The same applies to progress payments. Sales tax is due when payment is received, not when the project finishes.

This is why accurate bookkeeping is critical. You must separate “deposit liability” for income recognition from “sales tax payable” for compliance.

Structuring deposits and prepayments to improve cash flow

The right payment structure can stabilize your cash without overburdening the customer.

Common Spokane roofing structures

1. 30–40% deposit upfront: Covers materials and mobilization.
2. Progress payments: Triggered by milestones such as tear-off, dry-in, or inspection approval.
3. Final payment: Collected on completion, often after a punch-list walkthrough.

Why it matters

• Large deposits improve cash reserves but increase liability balances on your books.
• Progress billing reduces the risk of late collections and better matches payroll and supplier terms.
• Smaller, staged payments also build trust with customers who may be hesitant to release all funds upfront.

Avoiding common deposit mistakes

Many roofing contractors unintentionally mishandle deposits. Here are the most common errors we see in Spokane:

1. Treating deposits as revenue immediately

This inflates income during the busy summer, creating a false sense of profitability. It also increases taxable income earlier than necessary.

2. Forgetting sales tax timing

Even if revenue is deferred, Washington requires sales tax to be remitted when the deposit is collected. Contractors who skip this step may face penalties and interest during audits.

3. Poor contract language

Vague or incomplete contracts lead to disputes over when deposits are refundable or applied. A strong written agreement protects both contractor and customer.

4. Using deposits to plug unrelated cash flow gaps

Deposits should fund project-specific expenses. Using them to cover unrelated overhead or old debts can create shortfalls when the job actually starts.

Legal and trust considerations

Washington law requires contractors to maintain financial responsibility, including how they handle customer money. Mishandling deposits can damage reputation, invite lawsuits, or even jeopardize licensing.

Transparent communication builds trust:

• Provide a clear invoice stating deposit amount, purpose, and balance due.
• Issue receipts showing payment applied to “deposit” not “income.”
• Update customers when deposits are applied to project milestones.

These practices reduce disputes and make your bookkeeping clean if Washington State auditors ever review your records.

Best practices for deposit management

1. Separate accounts for deposits

Some roofing contractors maintain a dedicated bank account for customer deposits. This helps ensure money is available when materials need to be purchased and avoids mingling funds with everyday expenses.

2. Automated bookkeeping rules

In QuickBooks Online or similar software, set rules to record deposits to “Customer Deposits” automatically, then transfer to revenue once work is completed.

3. Track deposits by job

Maintain job-specific ledgers so you can always show:

• Deposit received
• How it was applied
• Balance remaining

4. Regular reconciliations

At month-end, compare your deposit liability account to open projects. Each project should reconcile to the liability balance.

Case example: Spokane roofing firm mishandling deposits

A mid-sized Spokane roofing company collected large deposits in June and booked them directly as income. By August, sales slowed due to weather delays, but payroll and material bills kept coming. Because deposits had been treated as revenue, the company looked profitable on paper yet had no cash left for fall projects.

After reworking its bookkeeping to classify deposits as liabilities, the company could see its true cash versus earned income. They shifted to a 35% deposit, two progress payments, and a final balance. Within one year, their cash reserves stabilized and tax filings became smoother.

Technology tools for better deposit tracking

• QuickBooks Online with Projects: Allows deposits to be recorded as liabilities and then transferred to revenue by project.
• Jobber or AccuLynx: Roofing-specific platforms that integrate deposits, progress billing, and scheduling.
• Bill.com or Melio: Helps time vendor payments to align with customer deposits.

When integrated, these tools provide contractors with both accurate financials and real-time cash tracking.

Deposits, financing, and growth

Handled correctly, deposits can support growth. Banks and lenders look favorably on contractors who manage deposits as liabilities, showing financial discipline. Misclassified deposits, however, can distort financial statements, making it harder to secure credit for equipment, trucks, or expansion.

Spokane-specific tax reminders

• Sales tax applies when deposits are received.
• Retailing B&O tax is also due on receipts, regardless of whether the income is deferred.
• Keep documentation of deposits and how they tie to specific contracts.
• Always separate the deposit portion from sales tax collected on invoices.

Action checklist for Spokane roofers

1. Review your current contracts and clarify deposit terms.
2. Train your bookkeeper or office manager on liability accounting for deposits.
3. Set up automatic tax accrual for sales tax on deposits.
4. Reconcile deposit liability accounts monthly against open projects.
5. Consider a separate deposit account to keep funds clean.
6. Communicate clearly with customers about deposit purpose and application.

How a Spokane bookkeeping and tax partner helps

A local expert who understands roofing can:

• Configure QuickBooks to properly classify deposits and prepayments.
• Ensure Washington sales tax and B&O tax are accrued and filed correctly.
• Provide monthly reconciliations of deposits versus open projects.
• Create cash flow forecasts that account for deposit timing, project scheduling, and seasonal slowdowns.
• Prepare tax filings that minimize audit risk and keep you compliant.

Final Thoughts

Deposits and prepayments are essential in the roofing business, but they bring complexity that can trip up even experienced contractors. In Spokane, where seasonality and Washington tax rules add more challenges, handling deposits properly is key to protecting cash flow, staying compliant, and building long-term trust with customers.

Need help managing deposits, prepayments, and seasonal cash flow?
Work with a Spokane bookkeeping and tax professional who understands roofing. Schedule a consultation today and make sure every deposit works for your business, not against it.

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