VENDORS PREPAYMENT AND DEPOSIT

A vendor prepayment is a posting transaction that impacts the general ledger without offsetting
the Accounts Payable account. When the vendor prepayment is applied, the Accounts Payable
account is offset. Vendor prepayment transactions support the Multi-Book Accounting feature.
Prepayments are amounts paid for in advance of the goods or services being received later on.
Any payment made in advance can be considered a prepayment.
A deposit is a remittance you do in advance, your money is frozen on another account and you
loose all power of disposition over your money, but you remain the owner of this amount. The
purpose of a deposit is to secure an operation.
Difference Between Prepayment And Deposit
A deposit is a remittance you do in advance, your money is frozen on another account and you
loose all power of disposition over your money, but you remain the owner of this amount. The
purpose of a deposit is to secure an operation.
A prepayment is simple: you simply pay in advance. Prepayments are amounts paid for in
advance of the goods or services being received later on. Any payment made in advance can be
considered a prepayment.
How To Track Vendors Prepayments: to do this we need to consider the following

 Whether financial statements are needed (for example, for investors)

 How often the client pays vendor prepayments and how much they are
 How much time will pass between paying the vendor prepayments and the work being
done or products delivered
 The total value of combined vendor prepayments at year-end
A. Recording Vendors Prepayment Using Account Payable: his approach is similar to
receiving payments against accounts receivable, which you learned about in the
Customer prepayments and deposits lesson. It requires no setup. This method follows
the normal workflow, which may be easier for some clients who enter the transactions
as opposed to the accountant or bookkeeper doing it.
Follow these steps to use accounts payable to record and apply prepayment
1. Enter the prepayment by creating an expense, bill or check transaction then enter
the account Accounts Payable in the grid section. This creates a negative payable.
2. When the bill (for which the prepayment should apply) comes in, enter the bill for
the total amount.
3. Pay the bill. When you check the bill, the credit will be applied if Automatically apply
bill payments is selected in Account and Settings. If you are not fully applying the
credit, change it to the appropriate amount. If you are applying the credit but not
paying the remainder of the bill, clear the payment amount.
 NB: this method doesn’t conform to generally accepted accounting principles
because it doesn’t use a vendor prepayments asset account. This method is best
when clients only pay vendor prepayments occasionally. They can also use this
method if there’s a short time between the vendor prepayment and the delivery of
goods and services.
B. Recording Using Other Current Assets: Another way to track vendor prepayments is to
enter a check/expense or create a bill and record it to an Other Current Asset (OCA)
account, generally called Vendor Prepayments, increasing the balance until you are
ready to pay the final bill. Use the following steps;
1. Create another current assets account for Vendor Prepayments.
2. Enter a check or an expense to a vendor and post to the Vendor Prepayments asset
account in the Category detail grid.
3. When the expected bill for the goods and services comes in, enter the bill for the
total amount using either the Item details grid or Category details grid, whichever is
appropriate. Enter the amount of the prepayment in the Category details grid as a
negative amount.
OR:
An alternative way of doing this without altering the bill amount would be to enter
the bill for the whole amount, then enter a vendor credit for the amount of the
prepayment which should be applied. When ready, apply the credit on the Pay Bills
screen.
NOTE: This option will work for vendor prepayments of large amounts, or that
remain outstanding for some time. It adheres to generally accepted accounting
principles. The advantage of doing it this way is when you look at the Bills and
Applied Payments report, you will see the total amount of the bill, the vendor credit
and the bill payment.

Alternatively, if you are not entering a bill (perhaps the purchase is COD), enter the
expense transaction for the total amount of the purchase and enter the prepayment
in the Category details grid as a negative amount.