A deposit is the client's money paid before the client has anything to show for it, which is why it's the payment most regulated and most argued over. It funds the first material orders and proves the client is serious. It is not revenue earned; a contractor who spends the deposit on another job's payroll has borrowed from this one. State rules vary widely: California limits a home improvement deposit to 10% of the price or $1,000, whichever is less; many states have no cap; some require the deposit be held in a separate account.
A worked number
Kitchen contract $68,000, deposit 30% ($20,400) in a state with no cap. Cabinets ordered week two with a 50% deposit ($5,250) and demolition crew paid week one ($2,600). The deposit covers both and leaves $12,550 of the client's money in the account for the rough-in draw to reconcile against. The same contract in California: $1,000 deposit, and the cabinet order waits for the first draw.
The mistake it hides
Treating the deposit as the first draw of profit. Until work is done, it's a liability; on a work-in-progress report, a deposit on an unstarted job is 100% overbilled. The other mistake is a deposit that breaks the state cap, which in some states voids the contract's enforceability.
In Obra
Record the deposit as income on the project the day it clears; the project shows it as collected against the contract and the first costs draw against it. The retainage and progress billing calculator builds the rest of the draw schedule around it.