![]() In the case of cash accounting, recording payment takes place when a payment is made. If you are using accrual accounting system, a prepayment would be recorded when a financial event occurs – when a bill issued and not when a payment is made. Registering prepayments: cash and accrual accounting ![]() ![]() Some types of goods and services require a buyer to pay a full price in advance for the goods or services to be delivered. At the same time, the payer remains an owner of the money paid. When a deposit is paid, a payer loses the power of disposition over the money as the funds get frozen on the receiver's account. Therefore, a payment made in advance can be considered a prepayment. A prepayment is some amount that a buyer pays in advance, while the main goal of deposits is securing a transaction. Prepayments can be calculated based either on the percentage of the total order or have a fixed amount. It contains the amount to be prepaid on a sales order and enables you to invoice deposits required from clients or sellers. In such cases, you may issue a prepayment invoice, sometimes called a prepaid invoice.Ī prepayment invoice is a document used to record advance payments from suppliers or clients. There are certain situations where a deposit is required from either buyer or seller.
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