How to Record a Prepayment to a Vendor
It’s not uncommon for vendors to require partial payment of a product or service prior to its delivery. Before the vendor will perform the service or deliver the goods, for instance, they may ask you make a down payment. Maybe it’s 10% of the total or perhaps it’s 50%. Regardless, you’ll need to record the prepayment in your Quickbooks account; otherwise, it could throw off your books. So, what’s the best way to record a prepayment such as this in Quickbooks?
Accounts Payable
There are several ways to record a prepayment to a vendor in Quickbooks, one of which is to use Accounts Payable. Basically, this involves writing a check to the vendor and recording it to your Accounts Payable account. When done correctly, it will decrease the balance of the bill.
To record a prepayment to a vendor using Accounts Payable, log in to your Quickbooks account and select Banking > Write Checks > enter the vendor’s name and information as well as the payment amount. Next, access the “Expenses” tab and enter “Accounts Payable” in the “Account” column. From there, click the drop-down menu for “Customer:Job” and select the vendor’s name, after which you can click “Save and Close.”
You aren’t out of the woods just yet. You’ll still need to enter the bill by accessing Vendors > Enter Bills > complete the requested fields > Save and Close. You can then apply the prepayment to the bill by accessing Vendors > Pay Bills > select the bill for the prepayment > Set Credits. This should display the prepayment in the “Set Credits” screen. Assuming it’s displayed, click “Done” to complete the process.
Asset Account
Alternatively, you can make an asset account to track prepayments made to vendors. This is done by creating an Other Current Asset (OCA) account in Quickbooks, which will be used to track the prepayment. Next, you’ll need to write a check to the vendor for the prepayment amount, followed by entering the bill when the item or service has been delivered. You can then pay the remaining balance on the bill from the “Pay Bills” menu.
Keep in mind that you can run a report to view prepayments by accessing Reports > Vendors & Payables > Vendor Balance Detail. From here, select “Customize Reports” and choose the “Filters” Tab. You can then select the “Account” drop-down menu and choose the asset created to track the prepayment.
Did this tutorial work for you? Let us know in the comments section below!