How to Record Prepaid Inventory to a Vendor with Cash on Order Terms

How to Record Prepaid Inventory to a Vendor with Cash on Order Terms


Some Vendors have terms that require payment on Order or Receiving. The steps below show how to process the A/P side of the vendor payment and the "re-class" entry necessary to record the purchasing of inventory as a prepaid with two steps. The first step is to process the payment to the Vendor.

Enter the Prepaid and process the payment to the Vendor


    1. Navigate to Accounts Payable>>Vendor Maintenance
    1. Enter the Vendor ID
    1. Enter the Invoice Number (Ref Order # per Vendor Acknowledgement or Date of the Order)
    1. Enter the Invoice Date 
    1. Enter the PO Number as 99
    1. Enter the Current, Beginning, and Merchandise Balances as the total amount of the check
    1. Select the GL Account - Prepaid Inventory Account (D)
    1. Enter Accept

Pay the Vendor – Using the credit card or auto debit from the default bank account

    1. Navigate to Hand Check/Void Check processing 
    1. Choose the bank account or the credit card 
    1. Select the Invoice 
    1. Process the payment to the Vendor


Be sure to create a PO for the Prepaid Inventory with the Vendor and include a note in the PO that the inventory is prepaid, job reference number, etc.


The next step explains the necessary steps to perform upon receipt of the prepaid inventory from the Vendor and to correctly enter the item into Inventory, review the PO for Job costing accuracy, and re-class the prepaid item to inventory.

Re-class the prepaid expense to inventory


    1. Ensure the Inventory Items has a PO created, received and that the PO has been closed
    1. Navigate to Accounts Payable>>Open Item Maintenance
    1. Enter the Vendor ID
    1. Enter the Invoice Number (Original Ref Order # or Date of the Order + “*” or “R” to designate a correction or a re-class
    1. Enter the Invoice Date (The date you rec’d the inventory)
    1. Enter the PO Number (PO# that Received the Inventory)
    1. Perform the PO Review (may require an override of the cost and/or freight to match the actual amount per the invoice)
    1. Enter the Current, Beginning, and Merchandise Balance as zero
    1. Select the following accounts in the GL Account drop down – 
    1.  Inventory – Enter the cost amount as a (D)
    1. Inventory freight, if applicable (D)
    1. Prepaid Inventory – Enter the original amount of the prepaid as (C) to re-class out of the account
    1. Enter Accept
Please note that because the second entry does not have a current or beginning balance, the item will not result in an entry to the A/P Open Invoice Listing. Therefore, there are no further steps to clear the re-class entry from any of the A/P payment reports. The re-class will post to the G/L upon running the Daily Accounts Payable-Open Item Adjustment Report and Print Journals/Update General Ledger process.





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