You have placed an order with your vendor for inventory.  Your vendor requires either payment in full or a deposit (partial payment) before shipping the inventory to you.  How do you record this transaction in QuickBooks?  You don’t want to Receive Inventory because you don’t want your inventory quantities to show inventory that you don’t have.  What you want to do is show that you have prepaid for inventory and show a credit for the vendor you purchased the inventory from.

Go to Write Checks on your Home Page.  Enter the vendor name, date, and the amount.  Under the Expense tab click on Prepaid Inventory.  You may need to set this account up in your Chart of Accounts.  If so, add this account as an Other Current Asset type of account.  Enter the amount you are paying.  Use the description field to make notes on what this is for.  Click Save and Close.

When your inventory has arrived, go to Receive Inventory > Receive Inventory With Bill.  Enter the Vendor name, the date and a zero ($0.00)* for the dollar amount.  On the Expense tab click on Prepaid Inventory and enter the amount that you paid for the order as a negative dollar amount.  Click on the Item tab and enter all the items in this order and the amount as a positive dollar amount.  The negative and positive added together will equal the zero dollar amount of the bill.   Click Save and Close.

You are through with this transaction.  The transactions for the Vendor in the Vendor Center will show the check that was written and the bill that was created.  The Vendor balance will be zero (0.00).  The inventory balance will have increased by the amount you paid and the inventory quantity will be increased by the quantity you entered.

*If you made a deposit for the inventory rather than paying it in full you would enter the amount you still owed on the bill.  Under the expense tab you will enter the amount you prepaid as a negative dollar amount.  Under the item tab you will enter the total amount of the inventory you received.  Both of these amounts added together will equal the amount of the bill.

If you have entered a purchase order before you write a check, choose “no” on the pop up message that you have outstanding purchase orders.  After you have received your order and go to Receive Inventory with Bill, in the Enter Bill window click on Select PO at the bottom left of the window.  Pick the PO that you are receiving inventory for.  Enter the rest of the information as described above.

Before writing this article I researched this topic and tested several different ways to record a prepayment of inventory.  I found this method to be the simplest.  Please feel free to comment, make suggestions or ask questions.