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Tracking Pre-Payments on inventory purchases in QuickBooks

I recently received a call from a client with an issue in buying/paying for inventory.  Basically he needs to have a way to pay an inventory item bill before the items are actually received and then have that payment apply to the bill that gets created once the items are received. Although it requires a few extra steps, here are 2 suggestions on how to handle this particular issue.

 

A)    Using Accounts Payable:

  1. From the QuickBooks Banking menu, choose Write Checks.
  2. Fill out the top part of the check with the vendor name and the amount of the payment.
  3. On the Expenses tab, enter Accounts Payable in the Account column. The amount should fill in for you.
  4. Enter the vendor name in the Customer:Job column, and then click OK.
  5. When the items arrive, either enter an item receipt without a bill (you will enter the bill later), or receive the items on a bill.
  6. When you are ready to pay the bill, from the Vendors menu, choose Pay Bills.
  7. You may want to choose Vendors in the Sort Bills By drop-down list, and select the option to Show all bills. This will allow you to see the
  8. credit and the bill together.
  9. Select both the credit (negative) and bill amounts. QuickBooks will create a bill payment check for the balance due. If the prepayment equals the bill amount, a check will not be created, but the prepayment and the bill will be linked.

 

B)     Create an Asset Account for tracking prepayments:

  1. From the QuickBooks Lists menu, choose Chart of Accounts.
  2. Click New.
  3. From the Type drop-down list, choose Other Current Asset.
  4. Enter a name, such as Prepaid Inventory.
  5. Click OK.
  6. From the Banking menu, choose Write Checks.
  7. Fill out the top part of the check with the vendor name and the amount of the payment.
  8. On the Expenses tab, enter the asset account you created in step 1 in the Account column. The amount should fill in for you.
  9. Click OK.
  10. When the items arrive, from the QuickBooks Vendors menu, choose Enter Bills. On the Expenses tab, select the asset account, and enter the amount of the prepayment as a negative value.
  11. On the Items tab, enter the items. The bill will equal the balance owed after deducting the prepayment. Recording the bill will reduce the asset account.
  12. Click OK

 

As always, if you need help getting this setup or have any QuickBooks related questions, do not hesitate to give us a call.

 

This entry was posted in Current Tips and Tricks, Inventory and tagged , , , . Bookmark the permalink.

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