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Buy nowWe buy land from various vendors. This usually means that payment is in two parts. A deposit when we agree to purchase and a payment at closing some weeks later.
I am trying to figure out how best to show that on QB desktop. At present I enter the deposit as a check and then the final payment as a bill. However, this creates two inventory items and not one. So, I tried entering the deposit as a bill and adding the final payment but that also adds it as two inventory items.
Does anyone have a suggestion on how to enter both separate transactions so that it remains as one item?
Thank you.
Since you already created a check and bill, let’s modify the initial check to act as a prepayment, which you can then apply to the bill, Steve.
Here’s how:
The Accounts Payable (A/P) check will be used as payment for the inventory specified in the bill. This way, it prevents duplicate inventory. Once done, let’s apply the prepayment to the bill you created. See the steps below:
For more info, check out this article: Record vendor prepayments or deposits in QuickBooks Desktop.
If you have a follow-up question, don’t hesitate to leave a comment below.
There are many ways this can be recorded. Personally, I think it's best to show the deposit as a separate asset on your balance sheet between the time you make the deposit until you close on the property, at which point, the deposit is closed and the full purchase price of the land is recorded in your fixed asset's basis. That tends to agree more with the closing statement provided by the title company.
If that process makes sense to you, create an Other Current Asset (OCA) account called "Land Purchase Deposits" or whatever name you prefer. When you write the check for the deposit, select the newly-created Land Purchase Deposits OCA on the Expense tab of the check. You now have the deposit listed as a separate asset on your balance sheet. When you close on the property, regardless if you use a bill or check, list the purchase price, fees, etc. as positive amounts and Land Purchase Deposits OCA as a negative amount. That will zero out/reduce the deposit account.
Thank you for the reply. If I have followed your instructions correctly, then I do not see the OCA in the vendor tab. Should the Land purchase deposits be a vendor?
Thank you.
"Should the Land purchase deposits be a vendor?"
Land Purchase Deposits is an other current asset account, not a vendor. To create it, go to Lists > Chart of Accounts. In the lower-left corner, click 'Account', then 'New', then select 'Other Current Asset' from the Other Account Types drop-down menu. Enter 'Land Purchase Deposits' in the Account name field. Save & Close.
When you write a check for the deposit, select the Land Purchase Deposits OCA on the Expenses tab of the check.
Thank you for the reply. I understand about the first prepayment. Are you saying that the second and final payment should be done the same one as the first and if so, I do not see set credits. Where will I find that selection?
Thank you.
"Are you saying that the second and final payment should be done the same one as the first and if so, I do not see set credits."
When you write the check to close on the property, enter the Land Purchase Deposit as a negative amount on the check since the deposit reduces the amount due at closing. There's nowhere that this deposit credit can be automatically applied - you need to manually select the Land Purchase Deposit OCA on the Expenses tab of the check. Let's say you buy land for $500K and your deposit is $25K. At closing, the Expense tab of the check will look like the check below. Certainly, you'll have other costs that will be entered as positive amounts and/or a loan payable entered as a negative amount if financing the purchase, but you get the idea.
One other quick thing:
Your original post mentioned land being an inventory item. Land is a fixed asset, not inventory, and should be recorded on the Expenses tab of the check or bill. You can set up each property as a fixed asset in your chart of accounts.
Thank you and that is a good point. I have been showing them as inventory to keep track of what we own. Which is an easy break down in QB. But getting the accounting right is better.
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