Supplier deposits and advances are funds paid by a business to a supplier before they have been earned. While the funds may be in the supplier’s hands, they are actually being held in trust for the business that pays the deposit and represent a liability the supplier must eventually either repay or convert to income by completion of the economic activity for which they are intended. Some examples include:

• Deposits accompanying purchase orders for custom manufacturing
• Prepayments for services or utilities to be invoiced later by the supplier
• Deposits to hotels for confirmation of reservations
• Deposits to landlords by tenants of rental property for cleaning or potential damages

Accounting for deposits and advances

Two essential facts must be recorded for every deposit:

• Supplier - who is receiving the deposit?
• Amount - how much is the deposit?

In Manager, both facts are recorded simultaneously when the deposit or advance is paid out. To record payment of a deposit, go to the Payments tab. Select New Payment:

Complete the payment form as you would for any other payment:

• Under Payee, select Contact type as Supplier. Choose the supplier from the dropdown menu. (The supplier to whom you are making the deposit must already by defined.)
• Do not select anything in the Item field, even if the deposit is for an inventory or non-inventory item.
• Under Account, select Accounts payable. The supplier’s subaccount will automatically be selected to match the supplier designated under Payee. This choice cannot be edited. (See note below.)

  Note
  If the deposit is paid to someone other than the supplier for whom the deposit is intended, the Contact type above must be Other. Then, you will be able to choose any supplier’s subaccount under Accounts payable.

• Leave the Invoice field blank.
• A quantity is not required in the Qty field, because no inventory items or billable items are involved with a deposit. You may simply enter the total deposit in the Unit price field. However, if you wish, enter the quantity and unit price and Manager will calculate a total.
• Tax code is normally left blank, because deposits or advances are not usually taxable events. However, rules in your jurisdiction may differ, especially if the deposit is for specific goods or services that will be delivered later. Check with a local accountant or your tax authority to be sure.

Using deposits and advances

The payment will now be deducted from the applicable bank or cash account’s balance:

The deposit also reduces the total Accounts payable balance, though the impact of a specific deposit will probably be obscured on the Balance Sheet by deposits and payables to other suppliers. To view specific information about supplier deposits, you can drill down by clicking the Accounts payable balance on the Summary page and locating the supplier’s account Balance:

Clicking on the balance, you can see transactions contributing to it, including the recent deposit payment:

You can do the same thing in the Suppliers tab, with similar results.

Whenever a purchase invoice is created for a supplier, any available net debit in that supplier’s Accounts payable balance will be automatically applied, reducing the balance due on the new purchase invoice.