How do I pay a bill using prepayment account? For instance, I've made $300 prepayment to MrA. A bill to pay MrA is $30 this month. How do I link this two?

Let me help you pay a bill using a prepayment account, @hazel-hlaing-orb. 

You can write a check to the vendor and record it to your Accounts Payable (A/P) account, decreasing the balance until you are ready to enter the final bill.

1. Create a check for the vendor.
   1. Go to the Banking menu, then select Write Checks.
   2. Enter the vendor name, date, and payment amount.
   3. Go to the Expenses tab. In the Account column, enter Accounts Payable.
   4. In the Customer:Job column, select the drop-down, then choose the vendor name.
   5. Press Save & Close.

Then, enter the bill:

1. Go to the Vendors menu, then select Enter Bills or Receive Items (if you like to record the bill later).
2. Fill in the necessary information.
3. Press Save & Close.

Once done, apply the prepayment to a bill by following the steps below: 

1. Go to the Vendors menu, then select Pay Bills.
2. Highlight the bill you want to associate with the prepayment.
3. Select Set Credits.
4. The prepayment will display on the Set Credits screen. Make sure it is checked, then select Done. If there is a balance due on the bill, QuickBooks will create a Bill Payment Check.

To view existing prepayments, just follow the steps below:

1. Go to the Reports menu, then select Vendors & Payables, and then Vendor Balance Detail.
2. Select Customize Report, then go to the Display tab.
3. Select the desired date range for the report.
4. Go to the Filters tab, then select Account from the list.
5. From the Account drop-down, select the asset account created to track prepayment amounts.
6. Press OK.

You'll want to visit our Help Articles page for more tips and references for managing your business with QuickBooks Online.

Keep in touch if you need any more assistance with this, or if there's something else I can do for you. I've got your back. You have a good one.

If we need to use Asset to track the prepayment in quickbooks online, how do we do it? Please provide step by step.

Thanks.

I'm glad to walk you through the steps on how to use an Asset account to track the prepayment, sg_chris.

You can write a check to the vendor and record it to an Other Current Asset (OCA) account. Doing this will increase the balance until you're ready to pay the final bill.

Let's start by adding the Other Current Asset (OCA) account on your Chart of Account.

1. Go to Settings ⚙, then select Chart of Accounts.
2. Click New to create a new account.
3. From the Account Type ▼ drop-down, choose Current Asset.
4. In the Detail Type ▼ drop-down, select the Other Current Asset.
5. Give your new account a name.
6. Add a description.
7. When you're done, click Save and Close. 

Next, write a check to your vendor. Just make sure to select the OCA account from the Category section.

Then, enter a bill when you receive the item. Go to the Category details and select the OCA account and enter the amount of the prepayment as a negative value. 

From the Item details, enter the items. The bill will equal the balance owed after deducting the prepayment. Note that recording the bill will reduce the asset account. Once done, pay the bill. 

If you need to view prepayments, you can run the Vendor Balance Detail report. Then, customise by selecting Asset from the Account when you filter the report. 

Let me know if you have additional questions by commenting below. I'm always around to answer your questions about tracking prepayments.

Hi MarylandT

Noted, however we are having an issue when the prepayment is more than final bill which resulted in a negative value which QBO does not allowed us to save the bill. Kindly see file attached.

How should we go about entering when the prepayment is more than the final bill?

Thank you.

Hi MarylandT

I also cannot customise by selecting Asset from the Account in Vendor Balance Detail report to view prepayments.

Kindly provide your guidance.

Thanks.

Let's make sure you'll be able to handle prepayments correctly, sg_chris.

Normally, the steps provided by @RCV is the correct way on how you can pay a bill using a prepayment account. However, since you want to use an Asset account, you can enter it as Journal entry, But, I suggest reaching to your accountant on the entries that you'll have to use. To create a journal entry, follow the steps below: 

1. Select + New.
2. Select Journal entry.
3. On the first line, select an account from the Account field. Depending on if you need to debit or credit the account, enter the amount in the correct column.
4. On the next line, select the other account you're moving money to or from. Depending on if you entered a debit or credit on the first line, enter the same amount in the opposite column.
5. Check the amounts - you should have the same amount in the Credit column on one line and the Debit column on the other. This means the accounts are in balance.
6. Enter information in the memo section so you know why you made the journal entry.
7. Select Save and new or Save and close.

Once done, you can run the Transaction List By Vendor and customise them to view prepayments entered. Furthermore, Financial reports give you snapshots of different areas of your business. To learn more on what available reports for users, I've added this article for your guide: Reports Included In Your QuickBooks Online Subscription.

Feel free to let me know if you have any concerns about prepayments. I'll be here to help.