Practical example recording prepayments: French legislation

Sage Active allows you to easily record all journal entries related to advanced payments that took place before the creation of the invoice they are related to.

These prepayments can be recorded for collections from your customers as well as for payments owed to your suppliers.

In this article you will find a practical example recording the prepayment amount including tax on the prepayment ledger account. This demonstrates recording the journal entries and also registering the amounts for tax returns and open items.

The example describes a customer doing a prepayment of 600€ for an invoice with a total amount of 1500€ (20% VAT).

This happens as follows:

• After receiving the 600€ in your bank account, you record the prepayment collection.
• At the agreed date, you record the invoice with the total amount of 1500€.
• After collecting the remaining amount for the invoice, you record it in your bank account.

The journal entries for each of these steps are described below.

Recording the prepayment collection

Recording the journal entry for the prepayment collection starts in the usual way:

1. Create a new financial journal entry.

   Accounting > Journal entries

2. Add and complete the first entry line using the amount collected from the customer (tax included) and a Bank or Cash ledger account.
3. Add the second entry line and select the Customer prepayment (tax included) ledger account.
4. If the prepayment ledger account is not configured with a Tax code, choose a Tax and Tax treatment from the side panel.
   The extra entry lines for the collected VAT and the ledger account you defined as Temporary prepayment account appear automatically with the correct amounts.
5. Select a Third party for the prepayment entry line.
6. Save the journal entry.

The resulting journal entry looks like this:

The VAT amount for the prepayment is registered in tax return for the month you record the prepayment in.

Recording the invoice

Recording the journal entry for the invoice with prepayment starts in the usual way:

1. Create a new invoice journal entry.

   Accounting > Journal entries

2. Choose a Revenue ledger account for the first entry line.
3. If the revenue ledger account is not configured with a Tax code, choose a Tax and Tax treatment from the side panel.
4. Add the taxable amount for the invoice to the revenue entry line.
   The VAT entry line is recalculated accordingly.
5. Add an entry line for the Customer prepayment (tax included) ledger account.
6. If the prepayment ledger account is not configured with a Tax code, choose a Tax and Tax treatment from the side panel.
   The chosen Tax and Tax treatment must be the same as used for the prepayment.
7. Select a Third party for the prepayment entry line.
8. Change the amount for the prepayment entry line to the amount of the prepayment, tax included.
9. Add an entry line for the Customer account and add the Third party.
   The amount will balance automatically.
10. Save the journal entry.

The resulting journal entry looks like this:

The VAT amount in the tax return takes into account the VAT amount already registered for the prepayment. The resulting VAT amount is registered in the tax return for the month you record the invoice in.

Recording the invoice collection

The journal entry for the collection of the remaining amount for the invoice can be recorded and matched like a standard financial journal entry.