As a QuickBooks consultant, we often have to figure out workflows for unusual situations involving prepayments from customers — including how to handle customer prepayments in QuickBooks. For customers that are new to the business, they may have to prepay for inventory that they have not received. It’s important to manage the workflow so that the accounts receivable and the profit and loss reports are accurate.
In order to track these prepayments, you need to create an account called “Prepaid Customers.” This would be a current liability account. When you make a deposit for the prepayments, you will deposit it straight to this new account and code this to “Prepaid Customers.”
Then you will go into Customer>Create Credit Memo Refund. Create a Credit Memo (opposite of an Invoice) to the customer for the same amount as your check. You will need to create an item code that points back to this same chart of account — “Prepaid Customers.”
Then create the credit memo using this item code:
If this is done correctly, your “Prepaid Customer” account will now be -0-.
Also, your Open Accounts Receivable will have a credit balance on it.
Now your prepayment 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 ready to be invoiced to the client. (We are not going through the vendor/bill steps).
Next step is the invoice needs to be entered. Click Customer > Enter Invoice.
After this invoice is created, we need to apply our prepayment. QuickBooks will recognize there is a prepayment, or you can select the button at the top to apply credits.
After you select the correct prepayment entry, click done.
When everything is applied properly, your accounts receivable will look like this:
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 customer and keep a running balance of available credit to apply to their 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 receivable would be zero.
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