If you are having to submit pre-payments for inventory on order (and thus not received yet), then you will need to deduct these prepayments upon receipt of the inventory and corresponding vendor bill.

First let’s create the prepayment:

  1. Create a new other current asset type of account called “Prepayments on Inventory” (or something like this) in QuickBooks.
  2. Now, create and post the inventory prepayment in QuickBooks. Be sure to post this payment to that same “Prepayments on Inventory” other current asset account (not an expense account or any other current inventory in stock account).

Now, let’s assume the inventory finally arrived, along with the vendor bill, and you go to post the inventory bill entry in QuickBooks. We are also going to assume you originally submitted a purchase order to the inventory vendor and this purchase order was already booked in QuickBooks previously.

  1. Go to the Vendors drop-down menu and select “Receive Items and Enter Bill”.
  2. Now click on “Select PO” at the top. Select the purchase order from the pop-up Open Purchase Orders screen.
  3. Now you will notice a new bill created for this purchase order, (confirm the bill is correct and matches all inventory actually received).
  4. Within this Bill screen, you will see two tabs in the middle of the screen: Expenses and Items. The Items tab should be populated with your received inventory items.
  5. Within the Expenses tab: Create a line-item entry and choose the “Prepayments on Inventory” account that you created earlier. Now type in a negative value that is exactly the same as the entire Items Receipt value.
    1. Example: If Items Receipts value is, say $15,600. Then your corresponding line item entry for the Prepayments on Inventory will be (negative) -$15,600.
  6. Click Save & Close.
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