Scenario: When a vendor prepayment deposit has been made but part or whole of the amount is unapplied on the invoice and will be refunded by the vendor, the balance in the Vendor Prepayment account needs to be reversed and the GL trail must be precise.
Currently, Vendor prepayment can only be applied to open bills [SuiteAnswer – 87402].
Application of Vendor prepayment to deposits is an enhancement in the voting stage [576715 – Ability to apply a Vendor prepayment to Bank deposit]. The Vendor Prepayment cannot be applied to a Journal entry either as this too is an enhancement currently in the voting stage [629203 – Vendor Prepayment > Ability to Apply Vendor Prepayments to Journal Entries]
Partially applied Vendor Prepayment
There are multiple alternatives to close the balance on the Vendor prepayment account:
Alternate 1 – creating a dummy vendor expense bill
- Create a dummy vendor expense bill with any dummy expense account as debit and A/P account will be credited on the creation of the bill. The amount will be the excess unapplied prepayment amount.
- Apply this bill to vendor prepayment. This will clear the balance in the vendor Prepayment account.
- On receipt of the amount refund, enter a journal entry with debit as the bank account and credit as the dummy expense account.
Note: The dummy expense account can be any expense or miscellaneous account. It won’t matter since it will be reversed on the journal entry anyway. There will be movement in the Accounts Payable account, but all in all the GL impact would be clear and accurate.
Alternate 2- Lower the vendor prepayment amount and create cashback and deposit/ Journal entry [This will only be possible if the prepayment is in an open accounting period or if the closed period is reopened]
- Delete the vendor prepayment application for the vendor bill.
- Edit the vendor prepayment to lower the amount to that refunded by the vendor.
- Apply supplier bill to vendor prepayment. The status is now fully applied
- Create a dummy transaction to show the excess amount paid to the vendor in the original prepayment deposit[amount not applied to the bill] – we can create a cashback [cashback subtab in Deposits] or pass a journal entry. The dummy expense account must be debited and the bank account credited.
- On receipt of the amount refund, record the receipt either by Journal or through deposit [Other deposits subtab under Deposits]. The bank account must be debited and the dummy expense account credited.
In the case of the vendor prepayment not applied to any invoices, we can:
- Create a dummy expense bill [as shown in alternate 1] for the entire prepayment amount or,
- Void the vendor prepayment transaction – On voiding the transaction, the vendor prepayment account earlier debited would be credited with the corresponding amount. Hence the vendor prepayment amount would be closed in the account. For accurate recording, ensure that the refund is made to the same bank account from which the original prepayment deposit was made.
Note: Vendor prepayment can be voided only on receipt of payment refund from the vendor as the bank account is also affected in the GL.