You must first create the Spend Money/Payment using the “Make a Cash Refund” section at the bottom of the OP/PP transaction form. On 15 Feb you invoice the client for services totalling $2000 + GST ($2,100.00). This method treats the payment as a deposit, and use credit note to represent the customer’s credit. You must make sure that the negative one-time charge amount is less than or equal to the total amount of the next invoice for the account. Because credit balance adjustment functionality is not supported by NetSuite, you must either use a negative invoice charge or return funds to the customer if you are using Z-Suite.

With a few clicks, prepayments can be seamlessly handled in Xero without needing manual journals or repeating entries. This saves significant time while enforcing best practices around accounting for advanced payments. Setting up reliable systems for managing prepayments in Xero not only improves cash flow visibility but also ensures compliance. With features highlighted in the setup and reporting sections, businesses can efficiently allocate expenses while keeping detailed audit trails.

Setting Up Prepayments Tracker in Xero

Xero provides helpful accounting tools to track and manage advanced payments. With streamlined recording of prepayments in Xero, small businesses can achieve more accurate revenue recognition, financial statements, and fulfillment of customer obligations. For the business, prepayments provide cash flow and visibility into upcoming work. However, it is crucial to track prepayments accurately to avoid counting the money before fulfilling obligations or delivering the products/services.

Settling Overpayments

This greatly simplifies tracking when you receive cash upfront and need to fulfill orders later. For a more detailed view, third-party tools like ScaleXP and G-Accon can provide visual timelines and comprehensive audit trails, going beyond Xero’s built-in reports. We’re a headhunter agency that connects US businesses with elite LATAM professionals who integrate seamlessly as remote team members — aligned to US time zones, cutting overhead by 70%.

• However, prepayments are better suited for expenses that need to be matched to specific periods, like insurance premiums or lease payments.
• While they might seem alike, they serve different roles and are managed differently in the system.
• Overpayments, prepayments and transfers will be available in an upcoming release.
• The invoice should be entered in full and posted to the expense to which it relates.
• This account ensures accurate classification on your balance sheet and simplifies prepayment management.
• For a more detailed view, third-party tools like ScaleXP and G-Accon can provide visual timelines and comprehensive audit trails, going beyond Xero’s built-in reports.

The Significance of Accurate Prepayment Tracking

To do this, open the invoice that is unpaid and navigate to the right-hand side drop down list. Create a credit note for the full amount and code it to the bad debts code. I you later recover part of the bad debt this can be coded to a bad debt recovered code. When you invoice for the job you should ALWAYS invoice for the full amount (as if the deposit hasn’t been paid) and charge the full Sales Tax.

Tracking and Reconciling Prepayments

Send – Once you are satisfied with the message, click the “Send” button and your email along with a PDF attachment of the customer’s receipt will be sent. Step A – Navigate to Accounts and select Sales as indicated in the screenshot below. If you don’t have one already, click here to sign up for a free 30-day trial and follow along below. Learn about emerging trends and how staffing agencies can help you secure top accounting jobs of the future. This manual method works alongside Xero’s automated tools to help you stay accurate and compliant.

It’s possible you will pay up front for the entire period or over a number of months for the invoice. At the very least could the Overpayment appear in the same way that Payments and Credit Notes appear when GETing an invoice. At least then we have some way of knowing that the Overpayment exists. This is a massive shortcoming and limiting us in recommended your system to our e-commerce customers. The Invoices endpoint will also be improved in a future release to make it easier to identify when an over/prepayment is applied to an invoice.

This section delves into the specifics of handling prepayments within Xero, detailing the accounting principles involved and the features Xero provides to manage them effectively. When you receive a prepayment, you record it in a prepayment journal. Later, when you deliver the goods/services, you apply the prepayment to the invoice to reduce the amount owed. Apply a refund and overpayment of invoice reminders for staying with the refund. An invoice and your xero overpayment of the job for correctly, check out of the app developers have saved the from.

Prepayments should not be processed in the same way as Overpayments. Overpayments, prepayments and transfers will be available in an upcoming release. To adjust prepayments, create monthly journal entries that debit expenses and credit the prepayment account. If adjustments are needed mid-period, reverse the original entries before making changes. As coverage periods progress, insurance prepayments need regular adjustments.

• With a few simple account adjustments, advance payments can be seamlessly managed in Xero without manual calculation or tracking outside the system.
• Xero provides helpful accounting tools to track and manage advanced payments.
• Either the customer asks you for a refund or requests you to adjust it in the next invoice.
• There are two main methods for handling prepayments – manual journals and the Prepayments Tracker.
• The payment(s) of the invoice can be posted against the initial bill raised in the first action point – this will have no impact on the profit and loss account.

When a business pays upfront for a yearly software license or membership, the total payment is spread out over the subscription period. As time passes, the prepayment is gradually converted into an expense. In order to record the overpaid amount there is a corresponding button “Add as overpayment” in the payment form. This repeating journal will release the invoice into the P&L over the next 12 months. Be sure to enter the end date as the last month for the period of supply.

For partial refunds, use manual journal entries with debit/credit adjustments. For full refunds, process credit notes with negative prepayment lines. For more complex cases, like multi-category allocations, use manual journals.

Step 3: Apply the Prepayment When Goods/Services Are Delivered

This is crucial for maintaining both operational control and meeting regulatory standards. Sometimes, automated features can’t handle more complex prepayment situations. That’s where manual journals come in handy – they give you the flexibility to allocate payments across different accounts or time periods.

Assign these payments to a ‘Tenant Prepayments’ liability account, and include lease details in the memo field. Make sure this dedicated liability account was set up during the initial configuration for tenant prepayments. Also to record prepayments and overpayments different general ledger accounts are applied. Overall, Xero’s Prepayment Tracker dramatically simplifies prepayment management for many small businesses.

Most US states do not require the reporting of Sales Tax until the final invoice. So if this applies to you then you should ensure that your Tax Rate is set to “No Tax” or equivalent. You can even create one from the Find & Match screen by clicking on New button and changing the prepayments and overpayments in xero “Received/Spent as” option.