prepaid income - how do I get it into the liability account? I have a homeowners association as a client. Many of the residents pre-pay their dues. The liability account "Pre-Paid Dues" was set up before the last bookkeepers took over. They did not use it. Now I need to correct their errors so that the P&L does not show negative income.
There are two methods you can use to track the prepayment. The first method enters a bill credit for the vendor into Accounts Payable, reducing your overall liability amount. The second method records the prepayment as an asset until you are ready to pay the final bill.
Using Accounts Payable to enter the prepayment:
From the QuickBooks Banking menu, choose Write Checks.
Fill out the top part of the check with the vendor name and the amount of the payment.
On the Expenses tab, enter Accounts Payable in the Account column. The amount should fill in for you.
Enter the vendor name in the Customer:Job column, and then click Save and Close.
Applying the prepayment to a bill:
When the items arrive, either receive the items on a bill, or enter an item receipt (if entering the bill later)
When you are ready to pay the bill, from the Vendors menu, choose Pay Bills. Note: You may want to choose Vendors in the Sort Bills By drop-down list, and select the option to Show all bills. This will allow you to see the credit and the bill together.
Select both the credit (negative) and bill amounts. QuickBooks will create a bill payment check for the balance due. If the prepayment equals the bill amount, a check will not be created, but the prepayment and the bill will be linked.
Using an asset account to track the prepayment:
Create an account for tracking prepayments:
From the QuickBooks Lists menu, choose Chart of Accounts.
Click New.
From the Type drop-down list, choose Other Current Asset.
Enter a name, such as Prepaid Inventory.
Click OK.
From the Banking menu, choose Write Checks.
Fill out the top part of the check with the vendor name and the amount of the payment.
On the Expenses tab, enter the asset account you created in step 1 in the Account column. The amount should fill in for you.
Click OK.
When the items arrive, from the QuickBooks Vendors menu, choose Enter Bills. On the Expenses tab, select the asset account, and enter the amount of the prepayment as a negative value.
On the Items tab, enter the items. The bill will equal the balance owed after deducting the prepayment and recording the bill will reduce the asset account.
Click OK
If there is a balance due after the prepayment is applied, a check will be created.
Creating a custom report to view existing prepayments:
From the QuickBooks menu, choose Reports > Vendors & Payables > Vendor Balance Detail
Choose Modify report, and then select the Filters tab
From the Account drop-down list, choose the asset account created to track prepayment amounts.
Choose the Display tab, and select the desired date range for the report
Click OK
I hope this helps.
In order to post the pre-paid homeowner dues into the liability account, you need to set up an Item to receive the payment and record a Sales Receipt to process:
Click the Items & Services Icon on the home page
Click Item:New at the bottom left tab
Set Up as an Other Charge Item
for the Income Account - Point the amount to the Pre-Paid Dues account already set up
By doing this, you are deferring the recognition of the prepaid dues to the next fiscal period. When it is time to actually record the revenue, you process a journal entry transferring the total of prepayments to the income account to recognize revenue for the new fiscal year.
