Learn how to enter a deposit paid to a vendor or a credit that you've received from a vendor.
Why record deposits and credits in a special way?
When you pay a deposit to a vendor or receive a credit from one, it's an asset, not an expense. To account for the credits you have with a vendor, you temporarily place the money into the PrePaid Expense account.
To then use the credits, you apply them against a bill, which moves the money from your Prepaid Expense account (an asset) into your expense account.
I don't have a PrePaid Expenses Account
If you have removed your PrePaid Expenses account (by default, your chart of accounts will have this account), then you can add it back by going to the
From there, use the
Add New Account section to create the following account:
Here's some additional information about creating the account.
- Number: You can feel free to leave this field blank as a number will be auto-assigned (however, you can add your own number if you have a numbering system)
- Description: A description isn't necessary, but you can add a description like "Expenses paid in advance or credits for vendor bills".
- Type: Make sure to choose the Pre-Paid Expense account type instead of a regular asset account, since this account type has special properties that allows you to apply funds within it as payments for bills.
Recording a Vendor Deposit/Credit/Overpayment
Here's an example of how to record an advance payment you made with a vendor. First, go to the
Then go the
Pay Bill tab.
You fill out the fields like you would for a bill payment, so for the
Payment Account, you choose the account you used to pay. However, instead of selecting a bill to pay, for the
Pre-payment, credit, and overpayment field, choose the Prepaid Expenses account and enter the payment amount.
In the above example, a $500 payment was deposited into the Bank Account.
Alternatively, if you overpaid a vendor bill, select the bill that has been overpaid. Additionally for the
Pre-payment, credit, and overpayment field, choose the Prepaid Expenses account and enter the overpayment amount.
Entering a credit is also very similar to entering a deposit.
The difference is that you would use an Expense Account for the
Payment Account. For example, if the bill that you're being issued a credit for used the Advertising & Marketing Expense account for the
Expense Account, then that's the account you would enter into the
Payment Account field.
If you are in a country that has Value Added Taxes (like VAT, GST, or HST) and you recorded those taxes on your bill, you need to make sure that you create an additional credit for the tax portion of the credit. So, if the sales taxes charged was 5%, you'd enter an additional credit for $25.00 that credits the Sales Tax Receivable account.
Note: The name of your Sales Tax Receivable account will probably be different, since the account will start with whatever your tax name is called. So, if the name of your sales tax were called "VAT", then your account would be named VAT Receivable.
Viewing Vendor Deposits/Credits
To see the deposits/credits that you have with a vendor, go to the
Vendors page and choose the vendor.
On the right hand side of the vendor's profile, you will be able to view the balances, which includes a section called Pre-paid Expense.
Applying Vendor Deposits/Credits
Applying funds found in the Prepaid Expenses account to a bill is easy. All you need to do is go to the
Expenses page and click on an existing bill.
Then click on the
Record Payment button.
This will pop up a payment window where you can follow these four steps:
- Click on
Show Pre-Paymentsto see your credits
- Click on a checkbox to apply a credit
- Choose the
- Click on
Note: If you need to print a check for the bill, apply the credit before going to the
Check Printingpage, and the bills to be paid will reflect the applied credits. If you want the vendor to know why you are paying them less than the amount of the invoice you can write a memo on the check.