Vendor deposits and prepayments in QuickBooks, done right
Record the advance once, keep it visible while the factory owes you goods, and apply it when the receipt bill arrives.
The OrderPilot team·
The April wire paid a factory deposit. June’s receipt brought the goods and a bill. If the wire was booked to cost of goods sold and the bill was entered at its full amount without applying the advance, the same purchase can be counted twice.
For the inventory purchase described here, the advance belongs in Vendor Deposits, an asset, until it is applied or otherwise resolved. Sending money to a supplier does not automatically make it an expense.
This is a bookkeeping guide, not accounting or tax advice.
Follow the advance to the bill
Here is a worked example: three white-oak trestle tables cost $3,000, with $900 paid before receipt and $2,100 paid afterward. Tax, freight, and currency differences are excluded.
| Event | Debit | Credit |
|---|---|---|
| Pay the advance | Vendor Deposits $900 | Bank $900 |
| Receive goods and record the bill | Inventory $3,000 | Accounts payable $3,000 |
| Apply the advance | Accounts payable $900 | Vendor Deposits $900 |
| Pay the balance | Accounts payable $2,100 | Bank $2,100 |
The deposit account returns to zero, the bill is settled, and inventory contains the purchase cost. COGS follows the inventory and sale policy. Payment dates follow the vendor’s agreement. One supplier’s published terms require a minimum 30% to start production and the remaining 70% after shipment against copies of shipping documents. That balance could precede warehouse receipt. Keep such an advance visible too.
See vendor payment terms before treating 30/70 as shorthand for one universal schedule.
Choose the QuickBooks treatment first
In Settings → Purchasing & accounting → QuickBooks, map the bank account, any credit-card account, and the Vendor Deposits asset account. Have your CPA confirm those mappings and the store’s inventory treatment.
Choose the vendor-payment mode that fits the process:
- As vendor deposits (prepayments): payments post to the deposit asset. Enable application to bills if you want advances drawn down against the PO’s bills, oldest first.
- As payments of the purchase order’s bills: payments settle available bill balances. Amounts paid before bills can absorb them post as advances and are drawn down as bills become available.
Bill-payment mode does not make an early payment disappear until goods arrive. It still needs a Vendor Deposits mapping. The broader QuickBooks setup guide explains how these accounts fit the purchasing flow.
Record the payment on the PO
Open the PO’s Vendor payments card and choose Record payment. Enter the amount, date paid, Paid by method, transfer or check reference, and any useful note.
Select the actual payment method. The account comes from the QuickBooks settings; the payment dialog is not a separate bank-account picker.
For a credit-card advance, use the card method and confirm its mapped account. Match the resulting QuickBooks transaction to the bank or card feed rather than categorizing the feed as another purchase. Recording the payment documents money already paid. It does not send a wire to the factory. Review wire transfers and letters of credit when deciding how to make that payment.
Check each receipt and the remaining advance
OrderPilot creates a QuickBooks bill for each receipt, linked to the purchasing lines. If a PO arrives in two shipments, review two receipt bills and the deposit applications across them.
A deposit should be applied only once. Any portion not absorbed remains visible as an advance rather than becoming a second payment against a fully settled bill. Intuit’s supplier-prepayment guide describes tracking advances and applying them when bills arrive. It is UK guidance with VAT-specific branches; use it for context, not US tax instructions.
Resolve exceptions instead of erasing them
If the PO cancels and the vendor refunds the advance, reconcile the refund against the deposit asset. A vendor credit for future goods is different from cash returned. Keep written confirmation of which outcome was agreed.
If a linked payment is deleted directly in QuickBooks, compare the PO record, QuickBooks transaction history, and sync status before entering a replacement. Do not assume a deletion in one system canceled the actual payment.
Review unapplied advances monthly by vendor, PO, payment date, expected shipment, and next action. Chase overdue commitments against their agreed dates; a long production lead time is not automatically a lost deposit.
Avoid three recurring mistakes
Do not expense the advance simply because the payee is a vendor. Do not enter a second purchase from the bank feed. Do not leave an old advance unexplained after its goods or refund arrive.
Bring unresolved amounts to the owner’s dashboard and the custom-order cash calendar. Every advance should point to goods still due, an application, or a refund to follow up.
Sources
Every advance should point to goods still due, an application, or a refund to follow up.
