Accounting terms

Dictionary of all accounting terms

What is Deposit?

The word "deposit" can have 2 primary meanings in the business and finance world.

First definition

Deposit can mean the transfer of funds to another party for safekeeping. Much like a person would deposit their paychecks into their bank account; their money is then insured if anything were to happen to it, and is protected by various security measures.

Second definition

The second meaning of the word "deposit" is collateral or a token of one's commitment. When a big purchase is being made, most vendors will ask for a deposit. In most cases, the deposit will be a % of the total value of the good that is being purchased.

Deposit in this case shows that the customer is committed to making a purchase, and the vendor reduces the risk of non-payment by holding on to the deposit.

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