QuickBooks Small Business

How to Handle Prepaid Inventory in QuickBooks

Written by Carrie Kahn

As a QuickBooks consultant, we often have to figure out workflows for unusual situations involving inventory, including how to handle prepaid inventory in QuickBooks. Customers that are new to the business may have to prepay for inventory they have not received. It’s important to manage the workflow so that the inventory on hand report as well as the profit and loss reports are accurate.

Carrie Kahn will be presenting at Accountex 2018 in Boston, August 22-23. Click on this link for a complete list of conference speakers.

Prepaid Inventory in QuickBooks

In order to track these prepayments, you need to create an account called “Prepaid Vendors” — this would be a current asset account. When you write a check for the prepayments, you will create a check to the vendor and code this to “Prepaid Vendors.”

Then you will go into Vendor>Enter Bill. Create a Bill Credit (opposite of a bill) to the vendor for the same amount as your check. You will use the account, “Prepaid Vendors.”

If this is done correctly, your “Prepaid Vendors” account will now be -0-.

Prepaid Inventory in QuickBooks

Also, your Open Accounts Payable will have a credit balance on it.

Prepaid Inventory in QuickBooks

Now your payment is appropriately reflected. Typically, the inventory is ordered with the prepayment, and there will be a time lapse before the inventory is received.

Inventory is received, and the bill needs to be entered. Click Vendor>Enter Bill.

Prepaid Inventory in QuickBooks

After this inventory is received, we need to apply our prepayment.

Go to Vendor>Pay Bills. You can filter by which vendor you are working with. Next, select the bill you want to apply the credit towards. Press the “set credits” button for the screen so you can select the correct prepayment.

Prepaid Inventory in QuickBooks

After you select the correct prepayment entry, click done.

Prepaid Inventory in QuickBooks

Finally, click Pay Selected Bills.

Prepaid Inventory in QuickBooks

When everything is applied properly, your accounts payable will look like this:

Prepaid Inventory in QuickBooks

And your inventory will look like this:

Prepaid Inventory in QuickBooks

These examples were displayed in QuickBooks Desktop edition as this is the version we recommend for tracking inventory. You can continue to add more of a prepayment to your vendor and keep a running balance of available credit to apply to your purchases. In this example, the amount of the prepayment was a different amount from the inventory purchased. If they were the same amounts, then your accounts payable would be zero.

If you love QuickBooks and want to learn more about the advantages, meet me at Accountex this year. I love to talk about QuickBooks Desktop.

About the author

Carrie Kahn

Complete Business Group helps small businesses purchase the RIGHT QuickBooks product at the lowest price and offers a team of experts to provide high level customer service so that they use QuickBooks® the way it was intended. With the many offerings from online to desktop we understand the benefits and limitations of each option to help you find the right solution. We have a team of certified ProAdvisors located all over the US ready to support you remotely or locally.

Carrie Kahn, CPA, the founder and CEO of Complete Business Group, has been helping small businesses purchase the RIGHT QuickBooks product at the best price and offers a team of experts to provide high level customer service so that they use QuickBooks®the way it was intended.

Carrie has been supporting and selling QuickBooks since Dos V1. She has been an Advanced Certified ProAdvisor since 2002. She joined the Intuit Reseller Program in 2008. In 2015 she launched the Complete Business Partner Program
mentoring ProAdvisors in selecting the best QuickBooks products for their clients at best pricing for their customers. She is very involved in the QuickBooks community providing extensive resources for ABBO Facebook group , Scaling New Heights, School of Bookkeeping, CPA Academy, Intuit’s Firm of the Future, and CBG Blog. Carrie is a lead QuickBooks Author for the Accountex blog. She was named Insightful Accountant’s Top 100 ProAdvisor every year since 2014 and was Insightful Accountant’s 2017 Social Media Resources ProAdvisor. She currently serves on the Intuit Reseller Program Council. CBG has been in the top 10 Intuit Premier Resellers (IRPs) since 2012 and currently is ranked #1 in the East. She is currently serving on the IRP Council. Carrie’s company, CBG was named Partner Program of the year for 2017.

2 Comments

  • How would this look from the other side? For example, if one of our customers prepays for inventory that we keep on hand and ship on request. Is there a workflow to track this inventory in Quickbooks after we’ve invoiced the customer?

  • Create a liability account called Prepaid Customers. Deposit the money in this account. Create a Credit memo for the client and point to an item code called Prepaid Customer (that points to the liability account).

Leave a Comment