Prepayment Concept, Prepayment Statuses, Accounting Entries for Prepayment Concept.

It is advance payment that we pay to the supplier to supply the goods/ services. There are two types of Prepayments, they are Permanent and Temporary  In case of Permanent Prepayment it acts like deposit with the suppliers. It will be adjusted only after converting Permanent Prepayment to Temporary Prepayment. In case temporary prepayment we adjust the prepayment amount at the immediate invoice received. The following are the different statuses in the invoice.
1. Never validated ( Before Validation of Prepayment Invoice)
2. Unpaid ( After Validation of Prepayment Invoice and when payment is not made)
3. Permanent ( Permanent Prepayment) (After Payment to Prepayment Invoice)
4. Avaliable ( Temparory Prepayment) (After Payment to Prepayment Invoice)
5. Fully Applied. ( In case Prepayment Amount is applied fully to a Standard Invoice)
Accounting Entries:
For Prepayment Invoice:
               Prepayment A/c..........Dr
                            To liability a/c...................Cr
For Payment to Prepayment Invoice
               Liability A/c ............Dr
                            To Cash A/c.......................Cr.
In Case Of Standard Invoice
               Expenses A/c .............Dr
                            To Liability A/c...................Cr
Apply the Prepayment to Standard Invoice
               Liability A/c ...........Dr
                            To Prepayment A/c .............Cr