Supplier deposits: separate cash paid from inventory received

When a supplier requires an advance, record the purchase order, supplier, receiving entity, currency, payment date, and what the payment secures. Keep the contract or order terms, including cancellation rights and whether the deposit is refundable. The bank payment alone does not prove inventory has been received or an expense has been incurred.

Ask the accountant to determine the appropriate classification under the company's accounting method and the transaction's terms. A supplier prepayment schedule should preserve the facts needed for that decision rather than automatically categorize every advance as cost of goods sold.

Track ordered quantities, received quantities, invoice amounts, deposit applications, and remaining amounts due. A purchase order can be fulfilled in several shipments, and a deposit may apply to one shipment or the order as a whole. Reconcile using the supplier's actual terms and documents.

In an illustrative $20,000 order with a $6,000 advance, the remaining cash payment may be $14,000 if there are no changes or additional charges. The final invoice should not create a second $6,000 payment obligation if the deposit has already been applied. Verify both the supplier statement and the internal payable.

Goods can be paid for before arrival, and physical arrival is not always the only fact relevant to ownership or accounting cutoff. Review the contract, shipping terms, and acceptance conditions with the accountant. A carrier status alone is not enough to resolve every in-transit balance.

Retain freight, duties, insurance, and other acquisition documents where relevant. The company's costing policy determines how qualifying costs enter inventory; the deposit amount should not become the default unit cost simply because it was the first cash paid.

Age open advances and identify delayed production, canceled orders, disputes, and amounts awaiting refund. Obtain supplier confirmation for material balances. A deposit that remains on the books long after the expected delivery date needs a documented assessment, not an automatic carryforward.

Before the next close, reconcile the prepayment schedule to the ledger and check that receipts or refunds have cleared the right order. In the cash forecast, show the remaining payment date and any uncertain refund separately. That prevents the purchasing team from treating an old advance as available cash or forgetting the final balance still to be paid.