A prepayment is when you put or receive money upfront for something you’re planning to receive or deliver later. Why have it? Well… businesses have prepayment as it provides them with security.
For example, if you wanted to book out a hall on a Sunday to host your birthday party and then decided you didn’t want to go ahead, the business, if they didn’t have anyone on standby to use the hall on that particular day, would have lost that anticipated money as a result of your cancellation. On both sides, a prepayment or ‘deposit’ just means that you’re ‘serious’ about going ahead with a purchase.
So what are the types of prepayments?
There are two types of prepayments.
Next: Creating Prepayments in Xero – A Shortcut