Prepaying Vendors
There are three (3) options to record prepayments to Vendors in Striven before they fulfill requests. These options are explained further below:
- Option One: Create a Journal Entry to prepay the Vendor for the ordered stock
The first method of prepaying your Vendor for stock you have ordered is to create a Journal Entry for that Vendor. To do so, start by creating a Journal Entry by clicking on Accounting and selecting Journal Entries from the drop-down menu. Once on the Journal Entries List, click the Add Journal Entry button and fill in the Journal Entry details, such as the date on which the prepayment was issued, the Class associated (if you are tracking Classes with your accounting), and a memo to describe the Journal Entry’s purpose.
Once that’s done, move on to the Line Item section. In the Account Selection field, choose your desired Accounts Payable account from the drop-down list. This will populate another field below it to select the Customer/Vendor related to the prepayment. Next, input the amount you are prepaying in the Debit field to the right of the Accounts Payable account. Debiting Accounts Payable will place a negative balance on the Vendor’s account, indicating that you owe them less money.
In the next available Account Selection field, choose the account from which you will be paying the Vendor. This could be a credit card account, but in many cases, this is a bank account. After you have selected the desired account from the drop-down list, enter the amount you will pay the Vendor in the Credit column. Crediting a bank account will place a negative amount on the bank’s overall balance, indicating that you’ve paid the Vendor successfully.
Once the Items are received from the Vendor, a Bill can be made from the Purchase Order to Receive Items into stock. Once a Bill is created, the pre-existing Journal Entry can then be applied to the Bill. This can be done by using the Actions menu on the Bill page and selecting Apply Credit. This will initiate a popup window in which the Journal Entry can be selected and applied to the Bill to close both transactions’ balances.
- Option Two: Create a Bill Credit to prepay the Vendor for the ordered stock
The second option for prepaying your Vendor for stock you have ordered is to create a Bill Credit. To do this, begin by creating a Bill Credit by clicking on Vendors and selecting Bill Credit under the Financial section of the drop-down menu. Once on the Add Bill Credit page, select the Vendor for whom you will be prepaying. Next, fill out the other important details, such as the date on which the prepayment occurred, a memo to describe the Bill Credit’s purpose, and select a Class (if you are tracking Classes with your accounting).
Once that’s done, click the Expenses tab below and in the Account Selection field, choose the account from which you will be paying the Vendor. This could be a credit card account, but in many cases, this is a bank account. Next, enter the prepayment amount in the Amount field to the right. Finally, click Save to create and post the transaction.
Once the Items are received from the Vendor, a Bill can be made from the Purchase Order to receive Items into stock. Once a Bill is created, the pre-existing Bill Credit can then be applied to the Bill. This can be done by using the Actions menu on the Bill page and selecting Apply Credit. This will initiate a popup window in which the Bill Credit can be selected and applied to the Bill to close both transactions’ balances.
Using either of these options, Striven users can effectively prepay for stock ordered from Vendors and apply the prepayments to Bills created at a later time to receive Items ordered into stock.
A Note about Option Two (2): Bill Credits are usually issued to account for things like damaged goods, unreceived Items, and other things where you request money back. For this reason, some people don’t like to use Bill Credits for appropriate prepayments, but creating a Bill Credit for this purpose will accomplish the desired goal.
- Option Three: Create a Purchase Order and Bills using Deposit Items
The third option involves the use of a Purchase Order and Bills. For this option we will use a 50/50 prepayment as an example, but this method will support any percentage of prepayment.
First, you will need to ensure you have a GL Account in your Striven system for “Prepaid Inventory” as an Other Current Asset type.
Next, you will need to create two (2) Items in your system. The first Item will be called “Inventory Prepayment” and will be a Deposit type. In the Accounting section of the Item Info page, select “Prepaid Inventory” as the GL Account for both Income Account and Expense Account.
The second Item will be called “Prepayment Credit” and will also be a Deposit type. Again, in the Accounting section of the Item Info page, select “Prepaid Inventory” as the GL Account for both Income Account and Expense Account.
Now, you will be able to record your Vendor Prepayment using a Purchase Order and Bills.
When creating the Purchase Order, you will need to add all of your Inventory Items for which you are making your prepayment. Fill in the PO details as needed. Before you click Create PO, make sure you add the “Inventory Prepayment” line item with a positive quantity of one (1) for the first half of the total amount of the PO. In this example, the total of the PO is $15,000, so half is $7,500.
Next, add the “Prepayment Credit” line item with a negative quantity of one (-1) for the other half of the PO total. Then you can click the Create PO button.
Now that your Purchase Order has been created, you can record your prepayment using a Bill. From the Actions menu on the PO, click Create Bill and complete the required fields as necessary. When you scroll down to the Item section, remove all of the line items EXCEPT for “Inventory Prepayment”, which should display with a positive quantity of one (1) for half the total amount of the PO. Save the Bill.
- Note: You will not need any other Items on this Bill.
When it is time to pay off the rest of the balance, you can create the final Bill. Return to the PO and select Create Bill from the Actions menu again. This time around, you will KEEP all of the line items and add the “Prepayment Credit” line item to the list with a negative quantity of one (-1) for the other half of the total amount of the PO. Save the Bill.
To confirm everything has been recorded correctly for this transaction, you can check the Posting Journal on the second Bill to see that the Debit and Credit columns are balanced and match the PO total.
Note: These methods of recording Prepayments in Striven are suggestions. That said, it is essential to consult with your accountant to confirm which approach aligns with your company’s accounting guidelines.
If you have any questions, please contact Striven Support and we will be happy to assist! 