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Intuit

How to record Supplier prepayments for Products or Services

When you order a part or a service from a Supplier, you may be required to pay a portion of the price before delivery.  These steps detail one way you could record the payment of money to a Supplier in advance of receiving the Bill (Payments in Advance / Payments on Account).

Please consult your Accounting professional if you have any doubts about this process, or to see if they have a preferred method of recording these transactions.

How do you report your VAT to HMRC? (select the relevant option below)

Accrual / Standard basis: VAT reported on receipt of the Bill

In this method you enter cheques/payments to the Supplier, record them to the Creditors / Accounts Payable (A/P) account. This decreases the Supplier balance until you are ready to receive / enter the final bill.

  1. Enter cheques / payments made to the Supplier - IMPORTANT: VAT Codes should NOT be used on these transactions.
    1. Select + New.
    2. Select Cheque, then enter the Supplier/Payee name, Bank Account and Payment Date.
    3. In the Category section, enter the relevant details and in the Amount column enter the Amount paid.
    4. Click Save and close.
    5. Repeat steps 1a-1d for any subsequent payments made in advance of Bill being entered.
  2. Enter the Bill
    1. Select + New.
    2. Select Bill, then fill out the necessary information including the VAT information.
    3. Click Save and close.
  3. Apply prepayments to the bill.
    1. Locate and open the Bill
    2. In the top right-hand corner, click Make payment.
    3. In Outstanding Transactions section, tick/select the Bill you want to associate with the prepayment.
    4. In the Credit section, tick/select the relevant Payments created in Step 1, above.
    5. If there is a balance due on the Bill, QuickBooks will create a Bill Payment Check. If you don't want to pay the remaining amount, edit the Amount figure above the right-hand side of the Outstanding Transactions section.
    6. Click Save and close.

Cash basis: VAT reported when payments are made

Recording Supplier Pre-Payments in this way ensures VAT is reported to HMRC when the payments are made. In this example we have tracked payments against an Other Current Asset (OCA) account, please consult your Accounting professional to see if they have a preferred method of recording these transactions.

  1. Create an Other Current Asset account to track prepayments.
    1. Click Accounting in the left-hand navigation bar, choose Chart of Accounts.
    2. In Chart of Accounts, click New button.
    3. From the Account Type drop-down list, choose Current assets.
    4. From Detail Type drop-down list, choose Other current assets.
    5. Enter the account Name, e.g. Supplier Prepayments, click OK.
      • Tip:  If you pay a small number of Suppliers in this way, you can create Sub-Accounts for each Supplier, as this may make it easier to track amounts paid
  2. Enter cheques / payments made to the Supplier.
    1. Select + New.
    2. Select Cheque/Expense, then enter the Supplier/Payee name, Bank Account and Payment Date.
    3. In the Category section, in the Account column select the Prepayments account created in Step 1, above.
    4. In the Amount column enter the Amount paid.
    5. Select the VAT Code, click Save and close.
    6. Repeat steps 1a-1e for subsequent payments made in advance of Bill being entered.
  3. Enter the bill when received.
    1. Select + New.
    2. Select Bill. In the Category section, select the Prepayments account created in Step 1, above.
    3. Enter the amount of prepayments as a Negative value, select the VAT Code used in Step 2e, above.
      • IMPORTANT - The amount in Step 3c needs to be entered as a negative to ensure VAT isn't claimed twice
    4. In the Item details section, enter the Items. The bill will equal the balance owed after deducting the prepayment and recording the bill will reduce the PrePayments account.
    5. Click Save.
  4. Pay the Bill balance - If there is a balance due after the prepayment is applied.
    1. Locate and open the Bill
    2. In the top right-hand corner, click Make payment button.
    3. Enter the amount being paid in the Amount box.
    4. Click Save and close button.

To help identify the amount of prepayments made to a Supplier, you can run the following report:

  1. Click Accounting in the left-hand navigation bar, locate the Prepayments account.
  2. In the Actions column to the right-hand side, click the drop-down next to Account history, select Run Report.
  3. Select the required date range by clicking the Report period drop-down
  4. If you have all prepayments going to the same account, click the Group by drop-down and select Name.
  5. Click Run report.

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