Prepayment transaction
You use prepayment transactions when you pay in advance for goods or services. After you create the prepayment and run Payment Closing (AP170), the application creates an offsetting credit memo, which you apply to the invoice once you receive it.
This example shows how a prepayment is processed in Accounts Payable. Assume that a vendor requires a $50 down payment for an item that costs $100. Assume also that the accrual account associated with the accrual code applied to the prepayment is a prepaid expense account.
Payment Closing (AP170) Transactions
This program creates general ledger entries for the prepayment.
| Account Description | Debit | Credit |
|---|---|---|
| Prepaid | 50.00 | |
| Cash | 50.00 |
When you receive the $100 invoice from the vendor, you apply the $50 system-generated credit memo to the invoice, so the payment to the vendor is only $50. Payment Closing (AP170) creates general ledger entries for the invoice payment with the credit memo applied.
| Account Description | Debit | Credit |
|---|---|---|
| Accounts Payable | 100.00 | |
| Cash | 50.00 | |
| Prepaid | 50.00 |