There may be an instance when you receive a prepayment on a job before you have sent out an invoice. These instructions will show you how this can be treated in Xero.
Please note: the GST treatment of prepayments is dependent on many different factors. Please check with your advisor to ensure that GST is treated correctly.
To code the prepayment:
- Click “Add details”
- Click on the dropdown arrow next to “Direct Payment” and select “Prepayment.”
- Fill in the prepayment details as below:
- From – this will automatically fill in the payee as per the bank statement. You may need to update this to the contact’s name already in Xero.
- Date – leave as is. This should be the date of the bank transaction
- Invoice # – leave as is. This is auto populated from Xero.
- Reference – this is optional. If there is a specific job or quote, you may wish to make reference to it here.
- Branding – select the relevant invoice branding. If you only have one version of invoice template, this will be “standard”
- Description – add a description as necessary
- Account – select “Prepayments.” Contact your advisor if you do not have this code.
- Tax Rate – check the GST treatment with your advisor
- Check the total agrees with the bank feed amount. Once done, press “Save Transaction.”
- Press OK
By doing the above steps, Xero creates a prepayment. It effectively sits as a sales credit note, ready to be applied against the actual invoice once this is raised.
To offset the prepayment against the invoice:
- Raise the sales invoice as usual. When you press “Approve” you should get the below notification. Select “Allocate.”
- Enter the amount of the prepayment in the highlighted box. Then press “Allocate Credit.”
- You will then be reverted back to the invoice, which will now show the amount due as the total less the prepayment.