How to
How to Record a Customer Prepayment
A customer sends you $240 against a $120 invoice. They are not confused — they are paying the year ahead, which is ordinary behaviour for anyone on a recurring service.
You need the extra $120 to land somewhere real. Not in a note to yourself, not as a negative balance on their account, and not nowhere.
Before you start
- An open invoice for the customer to pay against. Paying against an already-settled invoice also works — see the last section.
- A Deferred Revenue account mapped in your chart of accounts. Without it the payment saves but will not post.
- The customer’s SoldTo contact set. The credit is owned by a named customer, not parked in a ledger balance, and BasicBMS resolves the owner from SoldTo.
Steps
Open the invoice and choose Record Payment.
Enter the full amount that actually arrived in Amount Collected — the cheque or deposit as your bank sees it. In the example, $240.00.
Enter what this payment settles in Amount Applied. In the example, $120.00. The difference is the prepayment; you do not enter it separately.
Save the payment. The invoice closes and the remainder is booked as a credit owned by that customer.
What posts behind it
One journal entry, three lines, balanced. Using the figures from our own verification run — a $1,175.00 invoice paid with $1,475.00:
| Account | Debit | Credit | |
|---|---|---|---|
| DR | Cash | 1,475.00 | — |
| CR | Accounts Receivable | — | 1,175.00 |
| CR | Deferred Revenue | — | 300.00 |
| Balanced | 1,475.00 | 1,475.00 |
The Deferred Revenue line carries whatever name that account has in your chart of accounts — in our demo company it reads Customer Deposits.
The point of the third line is that the cash your bank received and the cash your books recorded are now the same number. The balance sheet still foots, with the prepayment sitting where it belongs: as a liability, because you owe that customer service.
Then it comes back on its own. When that customer’s next invoice is issued, the credit is drawn down against it, oldest credit first:
| Account | Debit | Credit | |
|---|---|---|---|
| DR | Deferred Revenue | 300.00 | — |
| CR | Accounts Receivable | — | 300.00 |
The invoice shows as paid without anyone re-keying anything. If the credit only covers part of the invoice, it covers that part and the remainder stays open. Re-posting the same invoice does not apply the credit twice.
When it won’t let you
Amount collected ($1,165.00) is less than the amount applied plus surcharge ($1,175.00) Collected is below applied. That is a typo, not a business event — you cannot apply money you did not receive. The payment is rejected and nothing is written.
No Deferred Revenue account is mapped. The payment saves, deliberately does not post, and appears on the Unposted Items report until you map the account. It refuses to guess which account to use. Guessing quietly is how this class of problem survives for years without anyone noticing.
What this doesn’t do
Cash that arrives with no invoice at all is not handled here. That still goes through bank reconciliation.
Paying against an invoice that is already settled does work — you get a two-line entry with no receivable leg, and the whole amount becomes credit.
Related
- Why a customer prepayment isn’t a negative receivable — the accounting reason this is a liability, not a discount on what they owe
- One Deposit. Three Invoices. — the opposite case: one deposit covering several invoices
- How to spread a prepaid expense across the year — the same mechanism pointed at money going out
Stuck on this one? Call (509) 949-2162 and we’ll walk through it with you.
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