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Record customer prepayments in QuickBooks

by Intuit•22• Updated 2 months ago

Some customers may pay you before you raise an invoice. You can record these prepayments to:

  • Track customer balances accurately
  • Ensure VAT is reported correctly to HMRC
  • Apply payments against future invoices

This article shows two ways to record prepayments:

  1. Using bank deposits – Record money received directly to the customer account.
  2. Using a current liability account – Track prepayments separately until the invoice is issued.

Option 1: Record prepayments using bank deposits

This method records the customer payment as a bank deposit, posting it to the Debtors (Accounts Receivable) account. The customer balance increases until the final invoice is raised.

  1. Select + New or + Create.
  2. Select Bank Deposit.
  3. Choose the Bank Account where the payment was received and the Payment Date.
  4. Scroll to Add funds to this deposit and enter:
    • Received From: Customer name
    • Account: Debtors (Accounts Receivable)
    • Amount: Payment received
  5. Save and close.
  6. Repeat for each prepayment.
  1. Select + New or + Create.
  2. Select Invoice.
  3. Fill out the invoice details including VAT.
  4. Save and close.
  1. Open the invoice and select Receive payment.
  2. In Outstanding Transactions, select the invoice(s) to match the prepayments.
  3. In the Credits section, select the relevant prepayments.
  4. If there’s a balance remaining, adjust the Amount to pay the remainder, or leave unpaid.
  5. Save and close.

Option 2: Track prepayments using a current liability account

For some businesses, it may be easier to track prepayments through a dedicated liability account.

  1. Follow this link to complete the steps in product Open this link in a new window
  2. Click New.
  3. Choose Current Liabilities for both Account Type and Detail Type.
  4. Name the account, e.g., Customer Prepayments, then click OK.
  5. Optional: Create sub-accounts for individual customers to track payments more easily.
  6. Save and close.
  1. Go to the Gear âš™ icon and select Products and Services.
  2. Select New, then choose Service.
  3. Name the service, e.g., Customer Prepayments.
  4. In Income Account, select the liability account created in Step 1.
  5. Save and close.
  1. Select + New or + Create.
  2. Select Sales Receipt.
  3. Enter Customer Name, Payment Date, and Bank Account.
  4. In Product/Service, select the prepayment service created in Step 2.
  5. Enter the amount received and select the correct VAT code.
  6. Select Save and close.
  7. Repeat for subsequent prepayments.
  1. Select + New or + Create.
  2. Select Invoice.
  3. Enter customer and service details, including VAT.
  4. On the last line, select the Customer Prepayments service and enter the amount as a negative value.
  5. Select the same VAT code used for the prepayment.
  6. Select Save and close.
  1. Open the invoice and select Receive payment.
  2. Enter the remaining payment amount.
  3. Select Save and close.

Run a report to review customer prepayments

You can run a report to see how much each customer has paid in advance.

  • If you used bank deposits (Option 1):
    Run the report on the Debtors/Accounts Receivable account or the specific customer account to see prepayments applied to invoices.
  • If you used a current liability account (Option 2):
    Run the report on the Customer Prepayments liability account to track all advance payments until invoiced.
  1. Follow this link to complete the steps in product Open this link in a new window
  2. Locate the relevant account (Debtors or Customer Prepayments).
  3. In Actions, select Run Report.
  4. Choose the date range using Report period.
  5. If all prepayments are in the same account, group by Name.
  6. Select Run report.

This report helps you track prepayments for all customers and ensures your accounts stay accurate.

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