There are often times when you need to pay to your suppliers in advance. The reasons for why you\u2019d need to do this may be what they are, but what matters to you, is recognizing those prepayments properly on your financial statements and treating them properly in your accounting.\u00a0<\/p>\n
So once you\u2019ve determined that you are going to make the prepayment (note here that in some cases you may be more inclined towards not paying before getting something and you may be interested in negotiating; it\u2019s more of a matter of managing your cash flows), you ought to take this up as an asset on your statements \u2013 you\u2019ve paid your resources to a third party and as such what you merely did, was give your resources to be held by someone else and hopefully, if all goes according to plan, to be used for delivering your goods or services at some given time. It is still your company\u2019s asset. The accounting entry you\u2019re doing in such a case is as follows (presuming you paid 2,000 to your supplier):<\/p>\n
Db\u00a0Prepayment to supplier2,000<\/p>\n
Cr\u00a0Cash and cash equivalents2,000<\/p>\n
Now, as the situation requires, at some point you\u2019ll be getting something for this prepayment and you\u2019ll probably be asked to pay some more for the prepayments usually are just partial payments. The accounting entry you\u2019d then do is as follows (presuming here that you paid 50% up front):<\/p>\n
Db\u00a0Inventory \/ Expense account4,000<\/p>\n
CrPrepayment to supplier2,000<\/p>\n
Cr\u00a0Payable to supplier2,000<\/p>\n
For half you\u2019ve already paid and as you\u2019ll be obtaining your goods or services, it\u2019s debited either into expenses or inventory, depending on the type of what you bought. Note here that only the remaining 50% is accounted as a payable to the supplier since you\u2019ve already paid up the other 50%.<\/p>\n","protected":false},"excerpt":{"rendered":"
There are often times when you need to pay to your suppliers in advance. The reasons for why you\u2019d need to do this may be what they are, but what matters to you, is recognizing those prepayments properly on your financial statements and treating them properly in your accounting.\u00a0<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[32],"tags":[],"class_list":["post-4991","post","type-post","status-publish","format-standard","hentry","category-1-4-prepayments"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4991","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=4991"}],"version-history":[{"count":1,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4991\/revisions"}],"predecessor-version":[{"id":4992,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4991\/revisions\/4992"}],"wp:attachment":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=4991"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=4991"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=4991"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}