Every business wants to take its operations to the next level. To fulfill that need, Vendor Deposits and Prepaid Expenses are raised. These are different accounts used for various needs like paying rent, Interest, Insurance, Legal retainers, Utilities, Advance Tax, and Subscription in advance to run business operations in better ways. They are providing advanced payment options and platforms for users, and that is an important part of a business that helps it grow. So in this blog, we learn and understand Vendor Deposits and Prepaid Expenses account in detail with their benefits
What are Vendor Deposits?
Vendor deposits are like an advance deposit process which made under the contract of a sale. In case you decide to buy something. For that, you sign a contract and make an advance deposit, which is close to 10% of the product or service cost that you select to buy. In this contract, all the important needs are written. During the delivery process, if that product or service does not match the contract and is unable to settle this problem on time, then all the vendor’s deposits are refunded. It helps to secure an operation.
What are Prepaid Expenses?
Prepaid Expenses are non-refundable expenses paid for in advance. That happens when a company pays in advance for goods or services to be received in the future. These payments were recorded as an asset on the balance sheet. In case a company wants to book a property and pay some amount in advance. In the future, if you change your mind or have a problem and want to cancel the booking. Then you can’t get your advance amount back because these are non-refundable advance deposits. That applies to a rent, subscription service, or insurance premium service.
Steps to Record Vendor Deposits and Prepaid Expenses in QuickBooks
In Vendor Deposits and Prepaid Expenses, there are two options available for entering prepayment and deposit. That is
Use an Asset Account to Track the Prepayment.
Here you can track the payment that you paid before getting the product or service. Here we discuss how to track prepayment.
- First, you need to open the chart of accounts in QuickBooks to make an Other Current Asset (OCA) record to track prepayments.
- Select New by right-clicking in the Chart of Accounts interface.
- Open Other Current Asset (OCA) and enter a name and click on ok.
- Then, to check your vendor, select Write Checks from the banking menu.
- Now enter the merchant name, date, and needed details.
- Go to the expenses tab and enter the OCA account, and click on ok.
- After that, enter the bill.
- Then click on pay bills. After prepayment is connected, the funds will be paid.
Use Accounts Payable to record a prepayment
To use Accounts Payable to record a prepayment, first, you need to make a check.
- Open QuickBooks and create a check for the seller from the QuickBooks banking menu.
- Enter the check details.
- Then go to the expenses tab and enter Accounts Payable from the Account section.
- In the customer job section, select the seller’s name and click on save and close.
- Then just enter the bill and check all the data, and click on save and close.
- Then select pay bills online from the vendor menu.
- Now you need to connect with the prepayment and then set credits.
- Then ensure that the check was placed at the point, and then click on done.
Why do Vendor Deposits and Prepaid Expenses Exist?
These are used to pay for bills and other needs in advance. But in Vendor deposit, you can pay in advance payment but you need to go through a contract. And the possibilities were present to get you refund in the case of dissatisfaction.
Prepaid Expenses were unique and opposite from vendor deposits. It is used in long-term insurance, rent, and subscription purposes. When you do not want to pay all the payments at a time, then prepaid expenses help you to pay the rent or anything monthly or weekly basis. The total amount of product or service cost is credited to the prepaid expenses account, and there you can set the schedule to pay bills. As the schedule prepaid expenses are released decided amount. Therefore, you will not miss any bills and stay safe from legal issues.
Benefits of Vendor Deposits and Prepaid Expenses Account
To use the Vendor Deposits and Prepaid Expenses Account, you can get many benefits, which help you to track and record your account and expenses easily, and also help you to grow your business rapidly.
- Save time and effort.
- Accurate financial report
- Improved cash flow management
- Enhance vendor relationship
- Cost management
- Cost saving
Conclusion
Both Vendor Deposits and Prepaid Expenses accounts are best for managing expenses and cash flow, and record all the transactions and provide an accurate financial report, which saves companies from complaints or legal issues. If you are a businessman and run a company, then it may help you. After reading this article, if you have any issues, then immediately contact our support team for an instant solution.