Handling Prepayments to Suppliers in QuickBooks Premier
Question: How do I handle a prepayment to a supplier in QuickBooks Premier?
Answer: Our industry is never easy. If you record a prepayment as a regular payment, you will have problems with the transaction later. The procedure to handle a prepayment to a supplier is as follows:
Go to “Write Checks” or “Enter Credit Card Payment” (whichever one applies).
Select the supplier in the “Pay to the Order of” or “Purchased From” field under the Expenses tab, and enter the amount. For the Account, enter “Accounts Payable” and select the Supplier in the “Customer:Job” field. I know this seems wrong since the supplier is not the “Customer:Job,” but this is the only way to have this prepayment record as a credit for this supplier. Enter Save and Close. This effectively reduces the balance due to this supplier and leaves the amount you have prepaid for later use.
Once you do this, you will see a reduced or negative balance due to that supplier/vendor in the Vendor Center. While we call them suppliers, QuickBooks refers to them as vendors. They are one and the same.
When the order is complete and you are ready to record the payment to the supplier, adjust the purchase order to match the invoice from the supplier. Create a bill from the purchase order, and go to “Pay Bills.”
In the “Pay Bills” tab, select that supplier’s bill. After you have selected that bill, look at the “Set Credits” tab below. The prepayment that you recorded should be there. Select the “Set Credits” button, and the credit should be applied against the bill, reducing it to the correct amount.
Please email accounting questions you would like considered for the column to HGatter@AccountingSupportLLC.com with the subject line of "Ask the Accountant."
Harriet Gatter, owner of Accounting Support LLC, was an ad specialty distributor for 23 years and an adjunct professor of accounting at Neumann University. She sold her ad specialty business in 2012, became certified as a QuickBooks ProAdvisor, and now works exclusively with ad specialty distributors nationwide on their QuickBooks, order management and accounting needs.