and now we will learn the last type of vendor and payable transaction that you need to know
about prepayments which means advance payments to vendors for products and services that we
will receive in the future there are different situations that would require us to pay a vendor
before we get the product or the service that we're paying for and therefore there are different
methods or different ways to record these pre payments into QuickBooks the method that I am
showing you in this particular video is called the check to accounts payable method for good side
about this method is that the vendors balance is always correct and your vendor records are
correct to the last detail at any given moment so if your priority is making sure that your vendor
records are correct this is the method that you should use however there are two downsides to this
method the first bad thing about this method is that total accounts payable in the trial balance
is not accurate that's because the vendor that you pay in advance will have a negative balance
and that will offset the total accounts payable and you will not know the total money that you
owe to all the other vendors the other downside to this particular method is that there is no
account in the chart of accounts or the trial balance showing total prepaid expenses or all
the money that you paid in advance for services and products that you're waiting to receive if
your chart of accounts and your trial balance is more important to you than your vendor records
then I suggest you do the method that will be shown in the video that will follow this
one for example on May 14th we paid OfficeMax 500 dollars in advance for three future deliveries of
supplies and we paid them with check number one six six one well what's going to happen if we
record this transaction under the method we're using cash will go down because we just paid a
vendor accounts payable will actually go down because when you pay a vendor accounts payable
decreases and that particular vendors balance will go negative the vet the individual vendors balance
will be correct and if you look at the vendor reports like the vendor balance detail or the
unpaid bill it will show the correct amount for that vendor so let's go back to the transaction
and see how to record it from the main menu click banking write a check now the money is coming from
the bank account okay and it's going to accounts payable so the cash and bank with the where the
money is coming from should be the account in the top of the window and accounts payable should be
the account on the bottom of the window it was checked number one six six one the date was back
on May 14th and the money amount is five hundred and the vendor was OfficeMax so now we have all
the information we need when we actually pay for the deliveries in advance now you have to use you
have to make strong use of the memo field because all the other relevant information can only go
in the memo field in advance payment for three deliveries of office supplies and you could put
any other detail you want and booting the expected delivery date now when you click Save and close
you can double check your trial balance to see that this was the very last transaction here it
is May 14th the very last transaction recorded in cash and bank and that you can see it brings
cash and Bank down by $500 maybe you can't see it brings cash and Bank down by $500 and you
could also see if you double click account payable that this very same transaction check number 1 6
6 1 brings down account payable on May 14th with the memo in advance payment and it's a debit to
account payable of $500 but the most important thing is looking at the vendor reports when you
look at the office max report unpaid bills shows a negative 500 if it's a negative unpaid bill it
means they owe us and if it's on the unpaid bill report it means it's still owed and still open
now here's where the interesting part comes in May 16th received the first supply delivery from
office max we receive $200 worth of supplies and they sent us a paid bill with this bill number
well when you actually receive the product or service that you paid in advance for there are
two steps first enter the bill normally the way you would whether it was a paid bill or
not secondly use the pay bills window to apply the in advance payment credit that we recorded on May
14th apply that to the bill you just entered then the vendor records will be perfect and
correct now if you record it that way supplies will go up because we physically receive $200
more of supplies and accounts payable will go up because we just received from a vendor the
vendor we'll be correct and the reports will be accurate so let's go back to those steps and let's
see how to record it from the main menu click vendor enter bill choose OfficeMax the vendor
the date that we received the merchandise with the bill is the 16th and it's eight seven eight
seven six the amount of the bill is the amount that we physically received of office supplies
and the expense what we physically received is supplies so this is the way we would enter the
bill whether the bill was a paid bill or not soon as we click Save and close we can open the unpaid
bills detail and we can see that OfficeMax now has the correct balance of owing us three hundred
dollars in future supplies and we can see that the reason why they owe us is that we pay them
five hundred on May 14th and then they delivered the merchandise with a bill on May 16th so this is
what the unpaid bills would look like the vendor balance detail same thing the balance was five
hundred they delivered two hundred and now they only owe us $300 worth of supplies now what's step
two step two is go to the pay bills window and set the bill and the check together so that they
cancel each other out and the unpaid bill report looks appropriate from the main menu click vendor
pay bills make sure you choose OfficeMax notice there's only one bill and QuickBooks doesn't yet
know it's paid but we're gonna tell it now if you only click on the row you're not able to
click set credit you have to actually click in the box to be able to get the set credit button
now you only have one transaction for OfficeMax that's listed as a credit because we only receipt
we only paid OfficeMax once so QuickBooks knows that this check number one six six one is a $500
credit against OfficeMax account since it's the only credit on the list QuickBooks automatically
checked it so we're applying this 500 to the two hundred dollar payment we click done and we notice
the amount to pay goes down to zero when we click pay selected bill and click done for the pop-up
now when you look at the unpaid bill report it is perfectly accurate and the only thing that it
shows is a remaining $300 unpaid by office max to us for the supplies we will receive in the future