I have a challenge on how to record customer prepayments CORRECTLY. I have followed and read some old links, but most seem to be broken or not existing.
This is how I recorded pre-payments:
Customer A pays 100 cedis for future delivery of my items.
- I receive the cash amount into a liability account I created called “prepayments”.
- Upon delivery of the item, I spend the cash amount from the “prepayments” liability account.
This type of recording is affecting my cash at hand balance in the wrong way as it reduces the cash at hand with the prepaid amount when I am spending from the “prepayment” liability account.
I need help, what am I doing wrong and how to correct it.