In business it often happens that you\u2019re either asked or you\u2019re willingly making a prepayment to your supplier. You will receive goods or services at a later date compared to when you pay for them.\u00a0<\/p>\n
When it comes to accounting though, you ought to account for the prepayment at the date it\u2019s done and not only when you receive the goods or services. Your accounting entry at the date of the payment is as follows:<\/p>\n
Db Prepaid expenses (for services) or Prepaid inventory (for goods)<\/i><\/p>\n
Cr Cash and cash equivalents<\/i><\/p>\n
Once the actual goods or services are received, you no longer need to show the prepayment. Most likely you either wont need to pay. Your accounting entry at the time should be:<\/p>\n
Db Expenses or Inventory (depending on if you bought services or goods)<\/i><\/p>\n
Cr Prepaid expenses or Prepaid inventory (depending on what was mentioned just above)<\/i><\/p>\n
The thing with prepayments is that you need to show them since you\u2019ve already paid something to be received at a later date, but the more you\u2019ve got them, the more you will forget you had them. What I mean is that within the total you need to keep track on all of the separate transactions, their \u201cdue date\u201d when the opposing goods or services should be received and so on.<\/p>\n","protected":false},"excerpt":{"rendered":"
In business it often happens that you\u2019re either asked or you\u2019re willingly making a prepayment to your supplier. You will receive goods or services at a later date compared to when you pay for them.\u00a0<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,35],"tags":[],"class_list":["post-4131","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-7-basic-entries"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t