For example, Ace Manufacturing Co. might agree to produce an expensive, custom-made machine for one of its customers. Ace requires that the customer pay $50,000 before Ace begins to design and construct the machine. The $50,000 payment is made in December 2012 and the machine must be finished by June 30, 2013. The $50,000 is a down payment toward the machine's price of $400,000.
In December 2012, Ace will debit Cash for $50,000 and will credit Customer Deposits, a current liability account. (The customer will record the $50,000 payment with a debit to a long-term asset account such as Construction Work in Progress or Downpayment on New Equipment, and will credit Cash.)
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