Interestingly, Vendor Deposits and Prepaid Expenses are two typical accounts. And that could be easily slipped and ignored among hundred of daily accounting tasks. You need to take extra care about both of the accounts otherwise your book won’t be as accurate as it is expected. go through the whole article to understand the different options to do this Vendor Deposit and Prepaid Expenses and learn to do it. For more info contact us toll-free+1-818-295-3510
Seller store is the organization’s look at that made of its case to merchants before accepting stocks or administrations organization ask. It is a forthright installment and merits genuine consideration, suitable record, and control. Losing them from your site may cause misfortune on the organization’s side making installments for stocks or administrations that never got by the organization.
Paid ahead of time has no potential misfortune yet it could turn into a major task on the year-end shutting in the event that you don’t assign them on the opportune premise each month. So it is another vital record that could be effectively disregarded. Thus, there ought to be a strong framework to deal with the two records. How to treat and records for them? Read on…
Well, you have two options for entering the prepayments or deposits. Therefore, you need to consult your accounting professional to know which option is best for you.
Option 1: Use an Asset account to track the prepayment.
You can compose a check to the merchant and record it to an Other Current Asset (OCA) account, expanding the adjustment until the point that you are prepared to pay the last bill.
I. Make an Other Current Asset (OCA) record to track prepayments.
- From the Lists menu, pick Chart of Accounts.
- In the Chart of Accounts, right-click anyplace then select New.
- From the Type drop-down rundown, pick Other Current Asset.
- Enter a name, for example, Prepaid Inventory.
- Snap OK.
II. Compose a check to your Vendor.
- From the Banking menu, select Write Checks
- Enter the merchant name, date and installment sum.
- Go to the Expenses tab and in the Account segment, enter the OCA account.
- Snap OK.
III. Enter the bill when things arrive.
- From the Vendors menu, pick Enter Bills.
- On the Expenses tab, select the OCA account.
- Enter the measure of the prepayment as negative esteem.
- On the Items tab, enter the things. The bill will break even with the adjust owed subsequent to deducting the prepayment and recording the bill will lessen the advantage account.
- Snap OK.
IV. Pay the bill to adjust.
- From the Vendors menu, pick Pay Bills.
- In the event that there is a fund to be paid after the prepayment is connected, QuickBooks will make a Bill Payment Check for the adjust.
Option 2: Use Accounts Payable to record prepayment
You can compose a check to the merchant and record it to your Accounts Payable (A/P) account, diminishing the adjust until the point that you are prepared to enter the last bill.
A. Make a check for the seller.
- From the QuickBooks Banking menu, compose Checks.
- Enter the seller name, date and the installment sum.
- Go to the Expenses tab and in the Account section, enter Accounts Payable.
- In the Customer: Job section, tap the drop-down and pick the seller name.
- Snap Save and Close.
- Enter the bill.
- From the Vendors menu, pick Enter Bills or Receive Items (If you get a kick out of the chance to record the bill later).
- Round out the vital data.
- Snap Save and Close.
B. Apply the prepayment to a bill.
- From the Vendors menu, pick Pay Bills Online.
- Feature the charge you need to connect with the prepayment. Snap Set Credits.
- The prepayment will show in the Set Credits screen. Ensure it is checked at that point click Done.
- On the off chance that there is a fund receivable on the bill, QuickBooks will make a Bill Payment Check.
Also, you can run a report to view existing prepayments you have on your company file.
- Select Vendors & Payables>Vendor Balance Detail from the Reports menu.
- Now, choose the Customize Report and select the Filters tab.
- Choose the asset account created to track prepayment amounts from the Account drop-down list.
- You need to go to the Display tab and select the desired date range for the report.
- And then click OK.
Why do Vendor Deposits and Prepaid Expenses Exist?
It’s normal to confront the necessity of a forthright store on a few administrations, for example, lease or utilities. The stores are generally held for a specific time, and they are either come back to you or connected as a worthy representative for your adjustment by the merchant. Now and again, sellers need you to prepay all or part of a cost you’re acquiring.
Prepaid costs are normally followed under the accompanying conditions:
A few sellers may request prepayment on an expansive request on the off chance that you don’t have a buying history with the merchant.
A few costs (e.g. protection) may require a yearly or semi-yearly installment that your bookkeeper needs to cost multi-month on end.
The assets you dispatch for any of these exchanges fall into the meaning of an ASSET—it’s an organization’s cash despite the fact that another organization or another person is holding it.
To track these settlements you need to make a benefit represent ‘Stores Held by Others’ as well as an advantage represent ‘Prepaid Expenses’. Both of these are gathered in the ‘Present Assets’.
The reason we recommend naming the benefit account as ‘Stores Held by Others’ seems to be, to ensure you don’t mistake it for accounts that track stores you’re holding for clients, for example, prepayments on requests, retainers, or other client monies you’re holding (which are LIABILITIES).
Naming a record “Stores” or “Stores Held” might befuddle; stores to whom, from whom?
How to Account Deposits Sent to Vendors
Usually sending a deposit to a vendor is a straightforward transaction. You could merely write a check. However, the check is an asset it is not an expense. Therefore, you need to post it to the ‘Vendor Deposits’ asset account to create the transaction journal. It is seen in the next journal entry.
Returns Of Vendor Deposits
Sometimes vendors return your deposit after a certain period of time. The most common method for returning a deposit is to send you a check. But sometimes, it is seen that the vendor may apply the deposit against the next bill.
In case you receive a check then all you have to do is deposit the check into your bank account. Now, you need to post the transaction to the ‘Deposits Held by Others’ asset account. It creates a transaction journal that is the reverse of the journal. And that recorded the check you wrote for the deposit.
- When your bank account is debited(increased).
- When the asset account is credited(decreased).
On the off chance that the seller gives you a credit against the present cost (the sum because of the merchant) rather than sending you a check, you need to transform the benefit into a cost. The technique you use for this activity is a diary passage, as observed beneath:
[Debit]. Lease = $800
[Credit]. Stores Held by Others = $800
On the off chance that the measure of the store that is connected to the following bill is not as much as the measure of the charge, you need to compose a check for the open adjust. The check is presented at the proper cost, not to the ‘Stores Held by Others’ benefits account. The aggregate of the returned store and the checksum break even with the cost that is posted for the month.
Tracking Prepaid Expenses
In the event that you pay ahead of time when you buy merchandise or administrations from a seller, that installment is an advantage. Make a ‘Present Asset’ account named ‘Prepaid Expenses’ to track these exchanges.
When you make the check for the prepaid cost, present it on the Prepaid Expenses account. This credits (diminishes) the sum in the financial balance and charges (builds) the sum in the Prepaid Expenses account. To transform the benefit into a cost when the merchant’s bill arrives (which may have a zero adjust if your store was an installment in full), make a diary section that credits (diminishes) the Prepaid Expenses represent the measure of your prepayment and charges (builds) the proper Expense account. Presently you have a cost on the books.
In the event that there are extra charges on the merchant’s bill, (for example, shipping costs, or the funds to be paid if your propel installment was not for the whole sum), pay those charges the way you as a rule pay charge, presenting the sum on the proper cost account.
Allocating Yearly Payments to Monthly Expenses
On the off chance that you pay a yearly charge for an administration that is given the month to month, (for example, protection, security administrations, specialized help contracts, and so on.), you (or your manager) may need to track the cost on a month to month premise.
In this situation, when you compose the single check for the yearly charge to the merchant, present it on the ‘Prepaid Expenses’ advantage account, not to a cost account. You at that point post the cost by making a diary section every month like the one seen on the following diary passage—which is the month-to-month cost for a yearly premium of $1,200. The diary section diminishes the ‘Prepaid Expenses’ benefit record and builds the cost account.
[Debit]. Protection = $100
[Credit]. Prepaid Expenses = $100