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Prepay Inventory in QBO

A company with intensive needs for inventory management probably needs an add-on product to work with QuickBooks Online (QBO). But if a company’s inventory needs are modest, QBO may be all they need.

When working with inventory and suppliers of products, it is sometimes necessary to prepay. That is, to pay for the merchandise before it is actually received.

This scenario requires special handling. QBO, like most accounting packages, thinks in chronological fashion. Order the goods. Receive the goods. Pay for the goods.

So how do we go about changing that chronological pattern so we can pay for the goods before we receive them?

First we create our purchase order just as we would normally. Now though, we need to create a check for the vendor as well or no widgets are going to be shipped to us.

We have in our books, a current asset type of account named Pre-Paid Inventory. This is the account we will use on the check.

When we create the check, the purchase order we created earlier shows in the ‘drawer’ on the right. The program would allow us to add that transaction to the check.

We definitely do not want to do that. The check is not filling the purchase order. The purchase order will be filled when we receive the widgets.

Once the goods are received, we create the bill. At this point, we do add the purchase order created earlier. In the screenshot above, the Add link has already been selected.

That is why the ‘drawer’ showing related transactions doesn’t show at the right part of the screen. Clicking the add link on the purchase order filled in the bill with the pertinent information.

The final step is to apply the check to the bill. As it now stands, this is an open bill showing on our books as though we owe the vendor.

First we locate the check we wrote earlier. This can be done in several ways. The check will show in the check register. It will also be available from the vendor screen if we select Kershaw Computer Services from the vendor list.

Above is the original check we wrote to prepay the inventory. Now the bill we created when we received the inventory shows in the drawer. The arrow points to the Add link.

Click the link to add the bill to the check, or in other words, to apply the check to the bill. Now the transaction is complete.

The bill will show as paid and our widgets are in stock.

Hector Garcia, CPA
Certified Advanced QuickBooks ProAdvisor

Hector Garcia

Hector Garcia

Hector Garcia is a CPA and QuickBooks Consultant.

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