Prepayment
A prepayment is a deposit or payment you make to a vendor before receiving an invoice. For example, you might make a $10,000 down payment on a large equipment purchase that will total $100,000 before the equipment is even received or invoiced.
Prepayments are unique from invoices in these ways:
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When you complete the payment cycle for a prepayment, the system creates an offsetting prepayment credit memo. You apply this credit memo later to invoices associated with the prepayment.
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Prepayments do not have invoice distributions. Expense distributions are created when the invoice is received and matched to the credit memo.
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Prepayments have an invoice type of P (prepayment).
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Prepayments can include a tax amount.
Accrual codes for prepayments
If prepayments are common in your organization, consider defining an accrual code specifically designated for prepayments. By using a prepayment account instead of the accounts payable accrual account, you avoid the possibility of prepayments distorting or understating your payables.