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    Vendors Prepayment and Deposit

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    mankahnganglum
    A vendor prepayment is a transaction that impacts the general ledger without offsetting the Accounts Payable account. Prepayments are amounts paid in advance of receiving goods or services later. There are two main ways to track vendor prepayments: 1) Using the Accounts Payable account, which does not conform to accounting principles but is simpler. 2) Creating a Vendor Prepayments asset account and entering prepayments against this account until goods/services are received and the final bill is paid, adhering to accounting principles.

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    Vendors Prepayment and Deposit

    Uploaded by

    mankahnganglum
    13 views2 pages
    A vendor prepayment is a transaction that impacts the general ledger without offsetting the Accounts Payable account. Prepayments are amounts paid in advance of receiving goods or services later. There are two main ways to track vendor prepayments: 1) Using the Accounts Payable account, which does not conform to accounting principles but is simpler. 2) Creating a Vendor Prepayments asset account and entering prepayments against this account until goods/services are received and the final bill is paid, adhering to accounting principles.

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    VENDORS PREPAYMENT AND DEPOSIT

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    A vendor prepayment is a transaction that impacts the general ledger without offsetting the Accounts Payable account. Prepayments are amounts paid in advance of receiving goods or services later. There are two main ways to track vendor prepayments: 1) Using the Accounts Payable account, which does not conform to accounting principles but is simpler. 2) Creating a Vendor Prepayments asset account and entering prepayments against this account until goods/services are received and the final bill is paid, adhering to accounting principles.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    13 views2 pages

    Vendors Prepayment and Deposit

    Uploaded by

    mankahnganglum
    A vendor prepayment is a transaction that impacts the general ledger without offsetting the Accounts Payable account. Prepayments are amounts paid in advance of receiving goods or services later. There are two main ways to track vendor prepayments: 1) Using the Accounts Payable account, which does not conform to accounting principles but is simpler. 2) Creating a Vendor Prepayments asset account and entering prepayments against this account until goods/services are received and the final bill is paid, adhering to accounting principles.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    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.

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