Prepaid Inventory

PointForce Enterprise allows you to prepay a supplier for inventory with or without the receipts accrual system activated in Company Control Initialization (CC00/Purchasing). The prepaid inventory functionality within the AP and PO modules is geared towards those who use the receipts accrual system to prepay suppliers for inventory, but can also be utilized if the receipts accrual system is not in use. You have multiple options available:

• You can prepay the entire amount of the purchase order.
• You can prepay a portion of the total purchase amount.
• You can create multiple prepayments against purchase orders.

The Prepaid Inventory feature within Enterprise is built on the existing receipts accrual component. Receipts accrual is a process that allows you to match the invoices you are paying to the inventory that is already received. In the receipts accrual process, the payment comes after the receipt of the goods.

The Prepaid Inventory process accommodates situations where you must prepay for inventory before you receive the goods. Many overseas vendors demand a prepayment of 50% or greater before they will manufacture and/or ship the goods to you. The receipts accrual process has been enhanced to include the prepaid inventory model.

• In a traditional 'post paid' receipts accrual scenario, you complete the following steps to pay a vendor for a purchase order:
  1. Create a Purchase Order in Create Purchase Orders (PO40).

  2. Receive the goods in Enter Receipts/In-Transits (PO60), and make adjustments as required. The receipt process is completed by running Print Receiving Register (PO64).

  3. Receive and process the invoice for the goods in Enter Invoices (AP30). Also in AP30, you match the invoice to the receipt and validate or deal with any discrepancies. Once AP30 is complete, you execute Invoice Audit Trail Report (AP31).

  4. Pay the invoice via the Process Computer Checks (AP40/42/43) module or the Process Manual Checks (AP50/51) module.

  5. At the end of this process, the vendor is paid appropriately for the goods received.

• In the 'partial prepaid inventory' model where you must prepay part of the shipment, you take the following steps to pay a vendor for a purchase order:
  1. Create a Purchase Order in PO40.

  2. Prepayment(s) to the vendor are created in AP30 because the supplier requires a partial payment before the goods are shipped to you, i.e. an invoice for the prepayment amount and a corresponding credit note that later gets applied to the final invoice. You make a prepayment (or multiple prepayments) in AP30 before the goods are shipped.

  3. Produce a payment to the vendor via AP40/42/43 or AP50/51 for the prepayment invoice.

  4. Receive the goods in PO60/PO64.

  5. Receive and process the actual invoice, match the invoice to the receipt and validate or deal with discrepancies, and apply the prepayment credit note(s) in AP30/31.

  6. Pay the balance owing via AP40/42/43 or AP50/51.

  7. At the end of this process, the vendor is paid appropriately for the goods received. Regardless of the number of prepayments made, the prepayment credit(s) are applied to the vendor's invoice and reduce the total amount of the invoice. If the prepayments have not covered the entire amount of the invoice, the system determines the outstanding balance that gets paid via the computer or manual check programs.

• The system is also designed to accommodate a 'fully prepaid inventory' model. In the 'fully prepaid' model, you take the following steps to pay a vendor for a purchase order prior to shipment of the goods:
  1. Create a Purchase Order in PO40 and select the 'Fully Prepaid' check box. This check box is only available if you are using the receipts accrual system; if you are not utilizing receipts accrual, this check box is unavailable.

  2. The prepayment to the vendor is created in AP30; the off setting debit goes to prepaid inventory.

  3. Produce a payment to the vendor via AP40/42/43 or AP50/51.

  4. Receive the goods in PO60/PO64. The 'fully prepaid' model does not expect the actual invoice to be processed in AP30; therefore a picture of the receipt details is not passed to the AP system for matching. PO64 credits prepaid inventory instead of receipts accrual. No further steps are required.

Prepayments via Computer Check(s) (AP40/42/43)

Example 1:
Make 2 Prepayments and Issue a Check for the Balance Owning on the Purchase Order

In this scenario, the supplier requires that 50% of the total purchase amount be paid before they begin to manufacture the goods. Once the goods are manufactured, the supplier requires an additional payment of 25% prior to shipping the goods. The outstanding balance (the remaining 25%) is due when you receive the goods and the invoice.

1. In order to have prepayments directed to the correct GL's, you must set up the prepaid inventory GL accounts in CC00/Purchasing. In the Receipt Accruals GL interface section of CC00/Purchasing, you must include GL accounts in the following fields:
   • Prepaid Inventory
   • Prepaid Inventory Clearing

   These GL accounts capture the prepaid inventory amounts and maintain a balance throughout the receipt accrual process. The prepaid inventory GL accounts are set up to ensure that the prepaid funds are properly debited and credited through your GL system.

2. You create your Purchase Order (PO) in PO40. In this case, our PO number is 000160.

3. Once you run PO42, you have the Purchase Order total amount. In this case, PO#000160 amounts to $660.00.

4. In order to prepay the Vendor for the inventory, you must create an invoice in AP30 with the 'Prepaid Inventory' check box selected. In this case, we will make the Invoice number 000160-1 (the PO number plus 1 to indicate the first prepayment). We will pay the vendor 50% of the total order value, or $330.00, in our first prepayment. We will also enter 'Prepay PO#000160' in the 'Reference' field.
   • When a prepayment is entered in AP30, the prepayment invoice (000160-1) is created with a Debit to the Prepaid Inventory GL for $330.00.

   • A second invoice (dummy invoice) is produced as a 'Prepayment Credit' type. This invoice can have an invoice number assigned by you OR can have an invoice number generated by the system. In this case, the generated invoice number is G0000006. The prepayment credit invoice is created with a Credit to the Prepaid Inventory Clearing GL for $330.00.

5. When you run AP31, the following GL entries are created:

   Prepaid Inventory Clearing                      330.00 (cr)
   Prepaid Inventory                   330.00 (dr)
   

6. To produce a check to the vendor for the prepaid amount, you must run the Process Computer Check programs:
   • Print Cash Requirement Report (AP40) displays the amount (prepayment amount) that is due to the supplier ($330.00).

   • Print Checks (AP42) prints the check to the vendor. The check detail shows that the check is for a 'gross' amount of $330.00. Note: Check stubs do not indicate the payment as a 'prepayment'. Once the final check is produced, the applied prepayment amount(s) and the check number(s) are displayed on the check stub.

   • Print Computer Check Register (AP43) shows the GL entries for the check that was produced:

     Bank                                      330.00 (cr)
     Accounts Payable             330.00 (dr)
     

7. Once the goods are manufactured, the vendor requires an additional prepayment of 25% (or $165.00) before the goods will be shipped. In order to make this second prepayment to the vendor, you must create another invoice in AP30 with the 'Prepaid Inventory' check box selected. In this case, we will make the Invoice number 000160-2 (the PO number plus 2 to indicate the second prepayment). We will pay the vendor 25% of the total order value, or $165.00, in our second prepayment. We will also enter a Reference of 'Prepay PO#000160'.
   • When a prepayment is entered in AP30, the prepayment invoice (000160-2) is created with a Debit to the Prepaid Inventory GL for $165.00.

   • A second invoice (dummy invoice) is produced as a 'Prepayment Credit' type. This invoice can have an invoice number assigned by you OR can have an invoice number generated by the system. In this case, the generated invoice number is G0000007. The prepayment credit invoice is created with a Credit to the Prepaid Inventory Clearing GL for $165.00.

8. When you run AP31, the following GL entries are created:

   Prepaid Inventory Clearing                      165.00 (cr)
   Prepaid Inventory                   165.00 (dr)
   

9. To produce a check to the vendor for the second prepaid amount, you must run the Process Computer Check programs:
   • Print Cash Requirement Report (AP40) displays the amount (prepayment amount) that is due to the supplier ($165.00).

   • Print Checks (AP42) prints the check to the vendor. The check detail shows that the check is for a 'gross' amount of $165.00. Note: Check stubs do not indicate the payment as a 'prepayment'. Once the final check is produced, the applied prepayment amount(s) and check number(s) are displayed on the check stub.

   • Print Computer Check Register (AP43) shows the GL entries for the check that was produced:

     Bank                                      165.00 (cr)
     Accounts Payable             165.00 (dr)
     

10. Once the vendor receives the second payment, the goods are shipped. When we receive the goods, we complete the receiving process using PO60. In this case, PO#000160 for $660.00 is received.

11. When we run PO64, the following GL entries are created:

    Receipts Accrual                                660.00 (cr)
    Inventory                           660.00 (dr)
    

12. When the actual invoice from the vendor is received, it is entered in AP30 as an invoice to be paid. In this case, the invoice number is REAL-INV:
    • A 'Payable' invoice is created in AP30 for the entire amount of the invoice, regardless of the prepayment amount(s).

    • On the Receipt Lines folder of AP30, you apply the correct receipt/PO to the invoice.

    • On the Prepayments folder of AP30, you select the prepayment line(s) to apply to the invoice. The generated invoices (or the 'dummy' invoices) created for the two prepayments are selected and applied to the invoice (G00000006 and G00000007).
      • The 'Reference' information entered when the prepayments were created displays on the Prepayments folder. In this case, the reference 'Prepay PO#000160' displays for both generated invoices.

    • Once the prepayments have been applied, the GL Distribution folder in AP30 displays the following generated transactions:
      • Receipts Accrual GL account is debited for $660.00 (the entire amount of the invoice).

      • Prepaid Inventory GL account is credited for $330.00 and $165.00 (the amount of each prepayment).

      • Prepaid Inventory Clearing GL account is debited for $330.00 and $165.00 (the amount of each prepayment).

13. When you run AP31, the following GL entries are created:

    Receipts Accrual                    660.00 (dr)
    Prepaid Inventory                                    330.00 (cr)
    Prepaid Inventory Clearing          330.00 (dr)
    Prepaid Inventory                                    165.00 (cr)
    Prepaid Inventory Clearing          165.00 (dr)
    

14. In order to produce a check to the vendor for the remaining amount, you must run the Process Computer Checks programs:
    • The AP40 detail for the actual invoice displays the original amount of the invoice ($660.00), the amount prepaid ($495.00) and the amount due ($165.00). The detail lines display the prepayment information including the generated prepayment invoice number(s) and amount of the check(s). In this case, the prepayment invoice numbers displayed are G00000006 for $330.00 and G00000007 for $165.00.

    • AP42 creates a check for the remaining amount due ($165.00). The check detail displays the Gross amount of the Invoice ($660.00), the Prepayment total ($495.00) and the Net amount ($165.00) of the check. The Check Number for both prepayments along with the Reference information and prepayment amount(s) display in the check stub portion of the check created for the vendor.

    • AP43 shows the GL entries for the check that was produced:

      Bank                                      165.00 (cr)
      Accounts Payable             165.00 (dr)
      

Example 2:
Prepay the Entire Amount of the Inventory Order Using the "Fully Prepaid" Option in PO40

Note: This example will only apply to you if you are using the Receipts Accrual functionality (set up in CC00/Purchasing).

In this scenario, the supplier requires that the total invoice amount (100%) be paid before they ship the goods. You know this when you enter your Purchase Order so you will select the "Fully Prepaid" option when creating the PO. You create an invoice as a Payable applying the full invoice amount to the Prepaid Inventory GL account as a debit. When you receive the goods, the Prepaid Inventory GL account is credited and there is no need for further action against the invoice from the supplier unless there are discrepancies.

1. In order to have prepayments directed to the correct GL's, you must set up the prepaid inventory GL accounts in CC00/Purchasing. In the Receipt Accruals GL interface section of CC00/Purchasing, you must include GL accounts in the following fields:
   • Prepaid Inventory
   • Prepaid Inventory Clearing

   Note: In this scenario, you only need the Prepaid Inventory GL account. This GL account captures the prepaid inventory amount and maintains a balance throughout the receipts accrual process. The prepaid inventory GL account is set up to ensure that the prepaid funds are properly debited and credited through your GL system.

2. You create your Purchase Order (PO) in PO40. Because we know that the PO must be fully prepaid, we will select the Fully Prepaid check box on the Header folder of PO40.
   • The Fully Prepaid option in PO40 allows you to process your prepaid inventory in a minimal amount of steps. Since a check for the full dollar value of the Purchase Order will be produced prior to the receipt of the inventory, you do not need to process the actual invoice from the supplier when the goods are received. As a result, if you know that your inventory must be fully prepaid, we recommended that you use this option.

   The PO number in this example is 000166.

3. Once you run PO42, you have the Purchase Order total amount. In this case, PO#000166 amounts to $110.00. Note: Because we have selected the fully prepaid check box in PO40, the printed PO indicates that this PO is **PREPAID** on the Purchase Order Total line.

4. In order to prepay the Vendor for the inventory, you must create an invoice in AP30. Because we have identified the PO as 'fully prepaid', we do NOT select the 'Prepaid Inventory' check box for the invoice in AP30. We will create an invoice with the type set to 'Payable' which, in this case, will be for Invoice number 000166-F (the PO number plus F to indicate the the payment is for the FULL invoice amount). We will pay the vendor 100% of the total order value, or $110.00 in our prepayment.
   • Note: You must manually enter the 'Prepaid Inventory' account on the GL Distribution folder as the GL that receives the debit transaction we just created. In this example, the payment invoice (000166-F) has a debit of $110.00 to the Prepaid Inventory GL.

5. When you run AP31, the following GL entries are created:

   Accounts Payable                                110.00 (cr)
   Prepaid Inventory                   110.00 (dr)
   

6. To produce a check to the vendor for the prepaid amount, you must run the Process Computer Check programs:
   • Print Cash Requirement Report (AP40) displays the amount (payment amount) that is due to the supplier ($110.00).

   • Print Checks (AP42) prints the check to the vendor. The check detail shows that the check is for a 'gross' amount of $110.00.

   • Print Computer Check Register (AP43) shows the GL entries for the check that was produced:

     Bank                                      110.00 (cr)
     Accounts Payable             110.00 (dr)
     

7. Once the vendor receives the payment, the goods are shipped. When we receive the goods, we complete the receiving process using PO60. In this case, PO#000166 for $110.00 is received.
   • In some cases, not all of the inventory is received. For a list of exceptions to PO60 in the Fully Prepaid model, click here.

8. When we run PO64, the following GL entries are created:

   Prepaid Inventory                               110.00 (cr)
   Inventory                           110.00 (dr)
   

9. When the actual invoice from the vendor is received, it is marked as fully paid and no further action is required since a check has been sent to the supplier for the full value of the inventory. By selecting the 'Fully Prepaid' check box in PO40, the receipt information is not stored in the Receipts Accrual (APRA) file.

Example 3:
Prepay the Entire Amount of the Inventory Order Without the Fully Prepaid Option

In this scenario, the supplier requires that a portion of the invoice amount be prepaid before they ship the goods. Instead of using the 'Fully Prepaid' option in PO40 when you create the PO, you decide after the fact to prepay the entire PO amount. In this case, you will prepay for the Inventory and then you will have to enter the 'actual' invoice into the system, but no payment (check) will be issued because the balance owing is zero.

1. In order to have prepayments directed to the correct GL's, you must set up the prepaid inventory GL accounts in (CC00/Purchasing). In the Receipt Accruals GL interface section of CC00/Purchasing, you must include GL accounts in the following fields:
   • Prepaid Inventory
   • Prepaid Inventory Clearing

   These GL accounts capture the prepaid inventory amounts and maintain a balance through out the receipts accrual process. The prepaid inventory GL accounts are set up to ensure that the prepaid funds are properly debited and credited through your GL system.

2. You create your Purchase Order (PO) in PO40. In this case, our PO number is 000168.

3. Once you run PO42, you have the Purchase Order total amount. In this case, PO#000168 amounts to $275.00.

4. In order to prepay the Vendor for the inventory, you must create an invoice in AP30 with the 'Prepaid Inventory' check box selected. In this case, we will make the Invoice number 000168-F (the PO number plus F to indicate the the prepayment if for the FULL amount). We will pay the vendor 100% of the total order value, or $275.00 in our prepayment. We will also enter 'Prepay PO#000168 in 1 pmnt' in the 'Reference' field.
   • When a prepayment is entered in AP30, the prepayment invoice (000168-F) is created with a Debit to the Prepaid Inventory GL for $275.00.

   • A second invoice (dummy invoice) is produced as a 'Prepayment Credit' type. This invoice can have an invoice number assigned by you OR can have an invoice number generated by the system. In this case, the generated invoice number is G0000010. The prepayment credit invoice is created with a Credit to the Prepaid Inventory Clearing GL for $275.00.

5. When you run AP31, the following GL entries are created:

   Prepaid Inventory Clearing                      275.00 (cr)
   Prepaid Inventory                   275.00 (dr)
   

6. To produce a check to the vendor for the prepaid amount, you must run the Process Computer Check programs:
   • Print Cash Requirement Report (AP40) displays the amount (prepayment amount) that is due to the supplier ($275.00).

   • Print Checks (AP42) prints the check to the vendor. The check detail shows that the check is for a 'gross' amount of $275.00.

   • Print Computer Check Register (AP43) shows the GL entries for the check that was produced:

     Bank                                      275.00 (cr)
     Accounts Payable             275.00 (dr)
     

7. Once the vendor receives the payment, the goods are shipped. When we receive the goods, we complete the receiving process using PO60. In this case, PO#000168 for $275.00 is received.

8. When we run PO64, the following GL entries are created:

   Receipts Accrual                                275.00 (cr)
   Inventory                           275.00 (dr)
   

9. When the actual invoice from the vendor is received, it must be entered into the AP system because our GL accounts are not yet balanced. The actual invoice is entered in AP30 as an invoice to be paid, even though the invoice is fully paid by the prepayment and may have a balance of zero. In this case, the invoice number is FINAL-INV:
   • A 'Payable' invoice is created in AP30 for the amount of the receipt.

   • On the Receipt Lines folder of AP30, you apply the correct receipt/PO to the invoice.

   • On the Prepayments folder of AP30, you select the prepayment line to apply to the invoice. The generated invoice (or the 'dummy' invoice) created for the prepayment is selected and applied to the invoice (G00000010).
     • The 'Reference' information entered when the prepayment was created displays on the Prepayments folder. In this case, the reference 'Prepay PO#000168 in 1 pmnt' displays for the generated invoice.

   • On the GL Distribution folder of AP30, the following transactions are generated:
     • Receipts Accrual GL account is debited for $275.00 (the entire amount of the invoice).

     • Prepaid Inventory GL account is credited for $275.00 (the amount of the prepayment).

     • Prepaid Inventory Clearing GL account is debited for $275.00 (the amount of the prepayment).

10. When you run AP31, the following GL entries are created:

    Receipts Accrual                    275.00 (dr)
    Prepaid Inventory                                    275.00 (cr)
    Prepaid Inventory Clearing          275.00 (dr)
    

11. A check will not be produced to the Vendor because the balance owing is zero, however to complete the processing, you must run the Process Computer Checks programs. You can complete the processing the next time you have computer checks to generate.
    • The AP40 detail for the actual invoice displays the original amount of the invoice ($275.00), the amount prepaid ($275.00) and the amount due ($0.00). The detail lines display the prepayment information including the generated prepayment invoice number and amount of the check. In this case, the prepayment invoice number displayed is G00000010 for $275.00.

Prepayments via Manual Check(s) (AP50/51)

Example 1:
Make One Prepayment and Issue a Check for the Balance Owing on the Purchase Order

In this scenario, the supplier requires that a minimum of 25% of the total invoice amount be paid before they ship the goods. The outstanding balance is due when you receive the goods and the invoice.

1. In order to have prepayments directed to the correct GL's, you must set up the prepaid inventory GL accounts in CC00/Purchasing. In the Receipt Accruals GL interface section of CC00/Purchasing, you must include GL accounts in the following fields:
   • Prepaid Inventory
   • Prepaid Inventory Clearing

   These GL accounts capture the prepaid inventory amounts and maintain a balance throughout the receipt accrual process. The prepaid inventory GL accounts are set up to ensure that the prepaid funds are properly debited and credited through your GL system.

2. You create your Purchase Order (PO) in PO40. In this case, our PO number is 0006400.

3. Once you run PO42, you have the Purchase Order total amount. In this case, PO#000640 amounts to $300.00.

4. In order to prepay the Vendor for the inventory, you must create an invoice in AP30 with the 'Prepaid Inventory' check box selected. In this case, we will make the Invoice number 000640-P (the PO number plus P to indicate the first prepayment). We will pay the vendor $750 towards the total order value in our first prepayment. We will also enter 'Prepay PO#000640' in the 'Reference' field.
   • When a prepayment is entered in AP30, the prepayment invoice (000640-P) is created with a Debit to the Prepaid Inventory GL for $75.00.

   • A second invoice (dummy invoice) is produced as a 'Prepayment Credit' type. This invoice can have an invoice number assigned by you OR can have an invoice number generated by the system. In this case, the generated invoice number is G0000017. The prepayment credit invoice is created with a Credit to the Prepaid Inventory Clearing GL for $75.00.

5. When you run AP31, the following GL entries are created:

   Prepaid Inventory Clearing                       75.00 (cr)
   Prepaid Inventory                    75.00 (dr)
   

6. To produce a check to the vendor for the prepaid amount, you must run the Process Manual Check programs:
   • In Enter Manual Checks/Adjustments (AP50), create a check for the prepayment amount ($75.00). On the AP50/Invoice folder, enter the prepayment invoice number (000640-P).

   • The Print Manual Check Register (AP51) shows the GL entries for the check that was produced:

     Bank                                       75.00 (cr)
     Accounts Payable              75.00 (dr)
     

7. Once the vendor receives the payment, the goods are shipped. When we receive the goods, we complete the receiving process using PO60. In this case, PO#000640 for $300.00 is received.

8. When we run PO64, the following GL entries are created:

   Receipts Accrual                                300.00 (cr)
   Inventory                           300.00 (dr)
   

9. When the actual invoice from the vendor is received, it is entered in AP30 as an invoice to be paid. In this case, the invoice number is 000640-R:
   • A 'Payable' invoice is created in AP30 for the entire amount of the invoice, regardless of the prepayment amount. In this case, enter $300.00.

   • On the Receipt Lines folder of AP30, you apply the correct receipt/PO to the invoice.

   • On the Prepayments folder of AP30, you select the prepayment line to apply to the invoice. The generated invoice (or the 'dummy' invoice) created for the prepayment is selected and applied to the invoice (G00000017).
     • The 'Reference' information entered when the prepayment was created displays on the Prepayments folder. In this case, the reference 'Prepay PO#000640' displays for the generated invoice.

   • On the GL Distribution folder of AP30, the following transactions are generated:
     • Receipts Accrual GL account is debited for $300.00 (the entire amount of the invoice).

     • Prepaid Inventory GL account is credited for $75.00 (the amount of the prepayment).

     • Prepaid Inventory Clearing GL account is debited for $75.00 (the amount of the prepayment).

10. When you run AP31, the following GL entries are created:

    Accounts Payable                                     300.00 (cr)
    Prepaid Inventory Clearing           75.00 (dr)
    Prepaid Inventory                                     75.00 (cr)
    Receipts Accrual                    300.00 (dr)
    

11. In order to have a check produced to the vendor for the remaining amount, you run the Manual Check programs:
    • In Enter Manual Checks/Adjustments (AP50), you create a manual check for the vendor in the amount of the balance owing i.e. for $225.00. On the AP50/Invoice folder, enter the actual invoice number, which in this case is '000640-R'. When the invoice is entered, the following fields display information:
      • 'Gross Amount' $300.00 (from the 000640-R invoice created in AP30).

      • 'Payment/Adj Amount' $225.00 (from the Manual Check you are creating).

      • 'Prepayment' $75.00 (from the 000640-P invoice created in AP30).

    • Manual Check Register (AP51) shows the GL entries for the check that was produced:

      Bank                                     225.00 (cr)
      Accounts Payable             225.00 (dr)
      

Example 2:
Prepay the Entire Amount of the Inventory Order Using the "Fully Prepaid" Option in PO40

Note: This example will only apply to you if you are using the Receipts Accrual functionality (set up in CC00/Purchasing).

In this scenario, the supplier requires that the total invoice amount (100%) be paid before they ship the goods. You know this when you enter your Purchase Order so you will select the "Fully Prepaid" option when creating the PO. You create an invoice as a Payable applying the full invoice amount to the Prepaid Inventory GL account as a debit. When you receive the goods, the Prepaid Inventory GL account is credited and there is no need for further action against the invoice from the supplier unless there are discrepancies.

1. In order to have prepayments directed to the correct GL's, you must set up the prepaid inventory GL accounts in CC00/Purchasing. In the Receipt Accruals GL interface section of CC00/Purchasing, you must include GL accounts in the following fields:
   • Prepaid Inventory
   • Prepaid Inventory Clearing

   Note: In this scenario, you only need the Prepaid Inventory GL account. This GL account captures the prepaid inventory amount and maintains a balance throughout the receipts accrual process. The prepaid inventory GL account is set up to ensure that the prepaid funds are properly debited and credited through your GL system.

2. You create your Purchase Order (PO) in PO40. Because we know that the PO must be fully prepaid, we will select the Fully Prepaid check box on the Header folder of PO40.
   • The Fully Prepaid option in PO40 allows you to process your prepaid inventory in a minimal amount of steps. Since a check for the full dollar value of the Purchase Order will be produced prior to the receipt of the inventory, you do not need to process the actual invoice from the supplier when the goods are received. As a result, if you know that your inventory must be fully prepaid, we recommended that you use this option.

   The PO number in this example is 000641.

3. Once you run PO42, you have the Purchase Order total amount. In this case, PO#000641 amounts to $110.00. Note: Because we have selected the fully prepaid check box in PO40, the printed PO indicates that this PO is **PREPAID** on the Purchase Order Total line.

4. In order to prepay the Vendor for the inventory, you must create an invoice in AP30. Because we have identified the PO as 'fully prepaid', we do NOT select the 'Prepaid Inventory' check box for the invoice in AP30. We will create an invoice with the type set to 'Payable' which, in this case, will be for Invoice number 000641-F (the PO number plus F to indicate the the payment is for the FULL invoice amount). We will pay the vendor 100% of the total order value, or $110.00 in our prepayment.
   • Note: You must manually enter the 'Prepaid Inventory' account on the GL Distribution folder as the GL that receives the debit transaction we just created. In this example, the payment invoice (000641-F) has a debit of $110.00 to the Prepaid Inventory GL.

5. When you run AP31, the following GL entries are created:

   Accounts Payable                                110.00 (cr)
   Prepaid Inventory                   110.00 (dr)
   

6. To produce a check to the vendor for the prepaid amount, you must run the Process Manual Check programs:
   • In Enter Manual Checks/Adjustments (AP50), create a check for the prepayment amount that is due to the supplier ($110.00). On the AP50/Invoice folder, enter the prepayment invoice number (000641-F).

   • The Print Manual Check Register (AP51) shows the GL entries for the check that was produced:

     Bank                                      110.00 (cr)
     Accounts Payable             110.00 (dr)
     

7. Once the vendor receives the payment, the goods are shipped. When we receive the goods, we complete the receiving process using PO60. In this case, PO#000641 for $110.00 is received.
   • In some cases, not all of the inventory is received. For a list of exceptions to PO60 in the Fully Prepaid model, click here.

8. When we run PO64, the following GL entries are created:

   Prepaid Inventory                               110.00 (cr)
   Inventory                           110.00 (dr)
   

9. When the actual invoice from the vendor is received, it is marked as fully paid and no further action is required since a check has been sent to the supplier for the full value of the inventory. By selecting the 'Fully Prepaid' check box in PO40, the receipt information is not stored in the Receipts Accrual (APRA) file.

Example 3:
Prepay the Entire Amount of the Inventory Order Without the Fully Prepaid Option

In this scenario, the supplier requires that a portion of the invoice amount be prepaid before they ship the goods. Instead of using the 'Fully Prepaid' option in PO40 when you create the PO, you decide after the fact to prepay the entire PO amount. In this case, you will prepay for the Inventory and then you will have to enter the 'actual' invoice into the system, but no payment (check) will be issued because the balance owing is zero.

1. In order to have prepayments directed to the correct GL's, you must set up the prepaid inventory GL accounts in (CC00/Purchasing). In the Receipt Accruals GL interface section of CC00/Purchasing, you must include GL accounts in the following fields:
   • Prepaid Inventory
   • Prepaid Inventory Clearing

   These GL accounts capture the prepaid inventory amounts and maintain a balance through out the receipts accrual process. The prepaid inventory GL accounts are set up to ensure that the prepaid funds are properly debited and credited through your GL system.

2. You create your Purchase Order (PO) in PO40. In this case, our PO number is 000638.

3. Once you run PO42, you have the Purchase Order total amount. In this case, PO#000638 amounts to $500.00.

4. In order to prepay the Vendor for the inventory, you must create an invoice in AP30 with the 'Prepaid Inventory' check box selected. In this case, we will make the Invoice number 000638-F (the PO number plus F to indicate the the prepayment if for the FULL amount). We will pay the vendor 100% of the total order value, or $500.00 in our prepayment. We will also enter 'Prepay PO#000638 in 1 pmnt' in the 'Reference' field.
   • When a prepayment is entered in AP30, the prepayment invoice (000638-F) is created with a Debit to the Prepaid Inventory GL for $500.00.

   • A second invoice (dummy invoice) is produced as a 'Prepayment Credit' type. This invoice can have an invoice number assigned by you OR can have an invoice number generated by the system. In this case, the generated invoice number is G0000003. The prepayment credit invoice is created with a Credit to the Prepaid Inventory Clearing GL for $500.00.

5. When you run AP31, the following GL entries are created:

   Prepaid Inventory Clearing                      500.00 (cr)
   Prepaid Inventory                   500.00 (dr)
   

6. To produce a check to the vendor for the prepaid amount, you must run the Process Manual Check programs:
   • In Enter Manual Checks/Adjustments (AP50) create a check for the prepayment amount that is due to the supplier ($500.00). On the AP50/Invoice folder, enter the prepayment invoice number (000638-F).

   • The Print Manual Check Register (AP51) shows the GL entries for the check that was produced:

     Bank                                       500.00 (cr)
     Accounts Payable             500.00 (dr)
     

7. Once the vendor receives the payment, the goods are shipped. When we receive the goods, we complete the receiving process using PO60. In this case, PO#000638 for $500.00 is received.

8. When we run PO64, the following GL entries are created:

   Receipts Accrual                                500.00 (cr)
   Inventory                           500.00 (dr)
   

9. When the actual invoice from the vendor is received, it must be entered into the AP system because our GL accounts are not yet balanced. The actual invoice is entered in AP30 as an invoice to be paid, even though the invoice is fully paid by the prepayment and may have a balance of zero. In this case, the invoice number is 000638-R:
   • A 'Payable' invoice is created in AP30 for the amount of the receipt.

   • On the Receipt Lines folder of AP30, you apply the correct receipt/PO to the invoice.

   • On the Prepayments folder of AP30, you select the prepayment line to apply to the invoice. The generated invoice (or the 'dummy' invoice) created for the prepayment is selected and applied to the invoice (G00000003).
     • The 'Reference' information entered when the prepayment was created displays on the Prepayments folder. In this case, the reference 'Prepay PO#0006388 in 1 pmnt' displays for the generated invoice.

   • On the GL Distribution folder of AP30, the following transactions are generated:
     • Receipts Accrual GL account is debited for $500.00 (the entire amount of the invoice).

     • Prepaid Inventory GL account is credited for $500.00 (the amount of the prepayment).

     • Prepaid Inventory Clearing GL account is debited for $500.00 (the amount of the prepayment).

10. When you run AP31, the following GL entries are created:

    Receipts Accrual                    500.00 (dr)
    Prepaid Inventory                                    500.00 (cr)
    Prepaid Inventory Clearing          500.00 (dr)
    

11. A check will not be produced to the Vendor because the balance owing is zero, however to complete the processing, you must "match" the invoice and applied credits using the Adjustment function of the Process Manual Checks programs (AP50/51). Specifically:
    • Choose the Adjustment option and enter the invoice number.

    • Detail for the actual invoice displays the original amount of the invoice ($500.00), the amount prepaid ($500.00) and the amount due ($0.00). The detail line displays the prepayment of $500.00.

    • Click Submit to complete the matching step.

    • Once AP51 is run, the prepayment credit (for the generated invoice, e.g. G0000003) is removed from the vendor's open invoices and added to the vendor's invoice history in Display Vendor Accounts (AP45). There are no GL postings generated by this step.