[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]

Re: Prepayments redux

John Bell writes:
> In the UK, (at least) an invoice is REQUIRED for a prepayment as it
> raises a liability for VAT.

I can believe that they require that you send some sort of acknowledgement
of receipt of a prepayment, but my guess is that they are referring to a
"pro forma invoice", which is really a form of credit memo.  A real invoice
claims that you have delivered goods and/or service, but you haven't when
you receive a prepayment.  Instead you have received a form of loan.  I'd
be willing to bet that a credit memo would satisfy that requirement.
Perhaps you could print "PRO FORMA INVOICE" on it to be sure, but that
might confuse some customers.

> For a sale of goods scenario (like mine), one way is to:
> 1) Issue an invoice for a service "prepayments" that goes to a ledger
> account "unearned income received"

> 2) at the time of shipping:
> a) Issue an invoice for the full amount for the goods sold
> b) Issue a credit for the prepaymet

The prepayment isn't "unearned income": it isn't income at all.  It's a
loan.  Credit it to the customer's account (giving him a credit balance)
and debit cash.  You could set up an "advance payments" account if you

When you ship the goods send an invoice as usual and on the invoice show
the amount for the goods, the prepayment, and the balance due, if any.
When you post the invoice the amount for the goods will offset the
prepayment, turning the loan into income.
John Hasler 
Elmwood, WI USA