Purchases · Level: Exam specials
Journal entry: Deposit paid to a supplier
We pay before the goods or machine are delivered. Until then we have a claim to the delivery: prepayments to suppliers.
Worked example
We pay a deposit of £7,500.00 plus 20% VAT by bank transfer for a machine we have ordered. It will be delivered next month.
Correct journal entry
Prepayments to suppliers £7,500.00, Input VAT £1,500.00 / Bank £9,000.00
Debit
Prepayments to suppliers£7,500.00
Input VAT£1,500.00
Credit
Bank£9,000.00
Why?
- Prepayments to suppliers: asset increases → debit
- Input VAT: asset increases → debit
- Bank: asset decreases → credit
Calculation
- VAT: 20% of £7,500.00 = £1,500.00
- Gross amount: £7,500.00 + £1,500.00 = £9,000.00
Typical mistake
Booking the deposit as an asset or purchase although nothing has been delivered yet.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
We pay a deposit of £13,500.00 plus 20% VAT by bank transfer for a machine we have ordered. It will be delivered next month.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for deposit paid to a supplier?
Example: Prepayments to suppliers £7,500.00, Input VAT £1,500.00 / Bank £9,000.00.
How do I recognise this case?
We pay before the goods or machine are delivered. Until then we have a claim to the delivery: prepayments to suppliers.
What is the typical mistake?
Booking the deposit as an asset or purchase although nothing has been delivered yet.