While preparing for their annual audit, one of my clients had a payment to a software vendor for a project that was going to be a capitalized asset once completed and wanted to double check on how the payment should be recorded. Should the payment be presented in the financial statements as a current deposit or as a non-current software project in progress? Whether for intangibles like software or for fixed assets like a facility expansion, the key distinction between whether payments represent a deposit or a project in progress lies in who owns what’s being built/created at the time the payment is made. If the vendor owns the asset being created, then your payments are current deposits. If you own the asset, then the payments should be reported as a non-current project in progress.
A simple example: If you buy a new car, any payments made prior to delivery or during the vehicles “construction” are current deposits since you don’t own anything at that point. If you are restoring a car, all of the individual payments for paint, interior parts, labor etc. are components of the cars total cost and would be presented as non-current construction in progress since the car belongs to you while the work is being performed.