How to add Prepayment and Overpayment Credits as Journal Entry

Prepayment credit refers to a type of credit facility where a borrower can make payments on a loan or debt obligation before their scheduled due date without incurring any penalties or fees. It can also refer to a situation where a customer makes a payment in advance of an invoice or due date. In this case, the customer is essentially prepaying for goods or services before they are received or delivered.

Accounting Example:

Parent Account	Account	Transaction / Reference	Date	Debit	Credit
Cash	Petty Cash	Credit / Prepayment Credit	Jan 1, 2022	10.00	-
Deferred revenue	Deferred revenue	Credit / Prepayment Credit	Jan 1, 2022	-	10.00

Leveraging Railz to use Journal Entries to add prepayment credit:

You may follow the below steps to add a prepayment credit as a Journal entry:

Determine the amount of the prepayment credit. This information can be obtained from relevant source documents like invoices, receipts, or customer payments.
Identify the accounts to be affected by the journal entry. The prepayment credit will be recorded as a credit entry to the prepayment account, and the cash or bank account receiving the payment will be debited.
The entry should include the date of the transaction, a brief description of the transaction, and the amount of the debit and credit entries.

Payload example:

You can use our POST /journalEntries endpoint to add a $10 debit line item, for example, from the cash account and a $10 credit line item, for example, for the prepayment account.

{
 "connection":
 {
   "businessName": "{{businessName}}",
   "serviceName": "{{serviceName}}"
 },
 "data":
 {
   "currency": "USD",
   "currencyRate": 1.3,
   "postedDate": "YYYY-MM-DD",
   "lines":
   [
     {
       "accountRef": "ID OF CASH ACCOUNT FROM ASP - SEE COA END POINT ",
       "description": "LINE ITEM DESCRIPTION",
       "amount": 10,
       "type": "debit"
     },
     {
       "accountRef": "ID OF DEFERRED REVENUE FROM ASP - SEE COA END POINT ",
       "description": "LINE ITEM DESCRIPTION",
       "amount": 10,
       "type": "credit"
     }             
   ],
   "memo": "SOME MEMO"
 }
}

Adding Overpayment Credit as a Journal Entry

An overpayment is any payment that is larger than the invoice's outstanding amount. This can occur if the wrong amount is paid, or if an invoice is accidentally settled twice. When you have an overpayment credit, you can create an overpayment credit by debiting the cash and crediting the accounts receivable.

Accounting Example:

A $10 overpayment credit is created from a Payment entered over the amount on an Invoice (e.g. $110 entered for a $100 Invoice):

Parent Account	Account	Transaction / Reference	Date	Debit	Credit
Cash	Petty Cash	Payment	Jan 1, 2022	100.00	-
Accounts Receivable	Accounts Receivable	Payment	Jan 1, 2022	-	100.00

Parent Account	Account	Transaction / Reference	Date	Debit	Credit
Cash	Petty Cash	Credit / Overpayment Credit	Jan 1, 2022	10.00	-
Customer Credit	Customer Credit	Credit / Overpayment Credit	Jan 1, 2022	-	10.00

When an overpayment credit is deleted, the entry will also be deleted.

When an overpayment credit is applied to an invoice:

Parent Account	Account	Transaction / Reference	Date	Debit	Credit
Customer Credit	Customer Credit	Payment	Jan 1, 2020	10.00	-
Accounts Receivable	Accounts Receivable	Payment	Jan 1, 2020	-	10.00

Leveraging Railz to use Journal Entries to add overpayment credit:

You may follow the below steps to add overpayment credit as a Journal entry:

Determine the amount of the overpayment credit. This information can be obtained from relevant source documents like invoices, receipts, or customer payments.
Identify the accounts to be affected by the journal entry. Eg: cash or bank account and Accounts Receivable.
The entry should include the date of the transaction, a brief description of the transaction, and the amount of the debit and credit entries.

Payload example:

You can use our POST /journalEntries endpoint to add a $10.00 debit line item from the cash account and a $10.00 credit line item for the accounts receivable account.

{
 "connection":
 {
   "businessName": "{{businessName}}",
   "serviceName": "{{serviceName}}"
 },
 "data":
 {
   "currency": "USD",
   "currencyRate": 1.3,
   "postedDate": "YYYY-MM-DD",
   "lines":
   [
     {
       "accountRef": "ID OF CASH ACCOUNT FROM ASP - SEE COA END POINT ",
       "description": "LINE ITEM DESCRIPTION",
       "amount": 10,
       "type": "debit"
     },
     {
       "accountRef": "ID OF ACCOUNTS RECEIVABLE FROM ASP - SEE COA END POINT ",
       "description": "LINE ITEM DESCRIPTION",
       "amount": 10,
       "type": "credit"
     }             
   ],
   "memo": "SOME MEMO"
 }
}

For more information: