Deposits are a liability, not revenue

In February, a guest pays you $600 to hold a chalet for the first week of July. Your bank balance goes up by $600. Almost every small-property operator books that as a good February.

It was not a good February. It was a good July that arrived early. Until that guest sleeps in the chalet, the $600 is money you owe a service to, and that is a liability, not revenue.

This is not accounting pedantry. It changes what your numbers mean, when your tax is due, and what happens on the day somebody cancels.

Why it matters more to a seasonal property than to anyone else

A business with even revenue through the year can be sloppy about this and stay roughly right. A seasonal accommodation business cannot, because its cash and its earnings are separated by months.

Deposits arrive in the winter and early spring. The stays happen in July and August. If deposits are recorded as revenue when they arrive, your books tell you that March was strong and September was weak. Both are wrong, and the pattern repeats every single year, which means the year-over-year comparison you use to make pricing decisions is comparing two distorted shapes to each other.

The version that is actually useful is: revenue is recognised as the stay happens, night by night, and the deposit sits as a liability until it does.

The word "deposit" is doing two jobs

Here is where operators get genuinely caught, and it is not their fault, because the industry uses one word for two different things.

• A prepayment is a partial payment of the price. The guest is paying part of what they will owe. It is a payment against a future supply.
• A security deposit is money held against damage or as a guarantee. The guest is not paying for anything. It is expected to come back to them.

These are not the same thing for sales tax purposes. As a general matter, tax is accounted for on consideration for a supply, and a genuine security deposit held as security is not treated as consideration until it is forfeited or applied. A prepayment against the price is a different animal.

The practical consequence: what you call it on the confirmation email does not decide what it is. How it behaves does. If you are taking money at booking and it is going to reduce the balance owing at check-out, you are taking a prepayment, whatever the field is labelled in your software. Have your accountant confirm your treatment once, in writing, and then set your system up to match it consistently rather than deciding case by case at the desk.

What correct looks like on the ledger

Four movements, in the order they happen.

1. At booking. Cash goes up. A liability goes up by the same amount. Revenue does not move. Whatever tax treatment your accountant has confirmed for prepayments is applied at this point, and it applies consistently.
2. During the stay. Revenue is earned night by night as the nights happen. The liability comes down at the same rate. On the third night of a seven night stay, three sevenths of that stay has been earned and four sevenths has not. This is why an accommodation charge that accrues per night is a real accounting feature and not a display preference.
3. At check-out. The remaining balance settles. The liability from that booking reaches zero.
4. On a cancellation. If you refund, the liability comes down and the cash goes with it, and nothing was ever revenue. If your policy lets you keep it, the forfeiture is the moment it becomes revenue, and it is revenue on the day of the forfeiture rather than on the day of the booking or the day of the cancelled stay.

Point four catches people. A forfeited deposit is real income and it belongs to the period in which the guest cancelled, not to the period in which the stay would have happened.

The number your accountant is going to ask for

At any period end, an accommodation business with advance bookings owes an answer to one question: how much of the money you are holding has not yet been earned?

That figure has two parts, and a system that reports only one of them is not much use.

• Fully unearned. Money for stays that have not started at all. Every dollar of it is a liability.
• Partly unearned. Money for stays that are in progress across the period end. A guest who checks in on the 29th and leaves on the 3rd has earned two nights into the old period and three into the new one. That split has to be pro rata, and it has to be automatic, because nobody is doing it by hand for forty reservations at midnight on a period end.

If your current system can produce the first number but not the second, you are close, and the gap is exactly the reservations that straddle your year end. Those are the ones an accountant will ask about first.

Three things this changes about how you read your own numbers

Your monthly revenue chart becomes a demand chart. It stops being a deposit-arrival chart. That is the version you can price against.

Occupancy and ADR line up with revenue. If revenue is booked when cash arrives, your revenue curve and your occupancy curve peak in different months, and neither tells you anything on its own.

You stop mistaking float for profit. The most dangerous version of this error is a spring where deposits are strong, the books look healthy, and the operator spends against money that is contractually still the guests'. The liability view is the one that says out loud how much of the bank balance is not yours yet.

Verify before you file

Sales tax treatment of deposits, prepayments and forfeitures depends on the facts of your arrangement and on your registration status. This guide explains the accounting structure, not your filing. Confirm the treatment of your specific deposit policy with your accountant, and confirm it once rather than per booking.

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In Cardinal, accommodation charges accrue per night as the stay happens rather than posting as a lump at check-out, and deferred revenue is reported as a liability split into fully unearned future stays and the pro-rata unearned portion of stays in progress. A booking taken in February for a July stay does not appear in February's revenue, and a forfeited deposit posts as revenue on the day it is forfeited.