If you have ever had to deal with deposits either from a customer or to a vendor, you may have found it difficult to keep track of payments and balances. Unfortunately there is no specific prepayment functionality in QuickBooks. As a follow up to Ashley’s post on Receiving Inventory in QuickBooks , we were asked how to handle vendor prepayments for future shipments. Below I will detail out how I take care of this. As most things, it may not be the only way, but it’s one that works best for me.
To begin, if you don’t already have one, the first thing to do is to create an Other Current Asset Account for your prepayments. I usually call it Prepaid Inventory. I like to use this description in addition to a Prepaid Expenses Account to help differentiate these types of prepayments from something like Insurance Prepayments.
Next I create a custom vendor report filtering for this Prepaid Inventory Account. The report varies depending on what other information I may need but usually I start with a Vendor Balance Summary Report and filter that. If you typically enter a bill for prepayments rather than a check you may also want to include the Payment Status Filter set to Closed. If you don’t do this additional filter, unpaid prepayment bills will show on the report. In my final step for this report I typically customize my header as needed and memorize.
So now we are ready to start making payments and receiving goods. When I receive a request from a vendor for a deposit, I enter a bill (a check would do as well) posted to this Prepaid Inventory account. Once you have paid that bill you will see it on your memorized report. So far so good.
So now we have received all or some of the inventory we have paid for or put a deposit on. At this point you will receive inventory as you normally do. The only thing that changes in this process is on bills that you will be using some or all of your prepayment on. When you enter the bill for these received goods you will need to do a couple unusual things.
- Enter the bill as you normally would but leave the Amount Due blank at this point.
- Review the items tab to ensure your pricing and quantities are correct.
- Click on the expense tab and enter the Prepaid Inventory Account and the amount of the deposit you want to use against this bill. The amount should be entered as a negative.
- If your deposit amount is less than the amount of the inventory on that bill, you will need to enter that difference in the Amount Due field above. If your deposit covers that total amount of the bill your Amount Due will be $0.00.
And that’s it. Your custom report will show you the available funds and if you drill into that summary data you will see the detail of that activity. I hope this was easy enough to follow.