How to Record Prepaid Inventory in QuickBooks Online

A lot of manufactures, wholesalers, and distributors buy their products or materials from China. Along with a purchase order, a pre-payment (or multiple payments), usually in the form of a wire transfer, is generally required before the items are shipped and received. 

Here is the process for recording prepaid inventory in QuickBooks Online:

Enter a Purchase Order as you normally would for inventory items.


Record the pre-payment as a Check or Expense using Accounts Payable for the expense account.



The pre-payment will now show as a credit for the open balance of the vendor.


When the shipment is received, create a bill from the purchase order.


The remaining balance will now show as the open balance for the vendor.


Make a payment (bill payment).


The bill and the prior pre-payment(s) are checked automatically and the difference, if any, is recorded as a check (or credit card payment).



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