Vendor Deposits or Prepayments

There are times when to purchase from a supplier, a payment must be made in advance. Here we will examine the simplest solution from a QuickBooks perspective.

This solution does not meet the criteria that a CPA would need to use in order to present financial statements. They would need to make an adjustment for that purpose. But for ordinary day-to-day functioning of the QuickBooks file and the needs of the vast majority of QuickBooks users, this solution works best.

The key is the account used in the stub portion of the check form.

Check to AP

The check is made out to the appropriate vendor. The account to post to is Accounts Payable. Note also that in the Customer:Job field, the vendor name is entered here as well.

When saved, this check will create a credit in Accounts Payable for McClain Appliances. This credit can then be taken against the bill once the product or service is received and the vendor invoice entered.

For purposes of this example, let’s assume the entire purchase from McClain Appliances was $5000. Enter the bill in QuickBooks for the entire $5000. Now, as it is time to pay that bill, we must somehow reduce it to the $4000 we actually owe them, since we already made the down payment of $1000.

pay bills window with credit

Above is the Pay Bills window filtered to view only the transactions for McClain Appliances. You can see the $5000 bill is listed and has been selected for payment. Once that happens, the highlighted area in the lower right appears.

This area tells us there is an outstanding credit of $1000 that can be taken against this bill. Of course, that is the $1000 check we wrote earlier.

Click the Set Credits button, accept the credit to be applied by clicking Done, and the Pay Bills window will appear as below.

pay bills window after credit

The bill payment check for McClain Appliances can now be completed as normal. The credit reduced the amount of the check to the $4000 actually owed.

The check will clear the balance in their vendor account. All the transactions will show as closed. And, the $5000 expense for the appliances has been recorded correctly and will show on reports correctly in QuickBooks.

Hector Garcia, CPA
Certified Advanced QuickBooks ProAdvisor
12401 Orange Drive #136
Davie, FL 33330
954-414-1524
hector@garciacpa.com

Hector Garcia

Hector Garcia

Hector Garcia is a CPA and QuickBooks Consultant.
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