If you happen to pre-pay a Vendor for Inventory it can be easily handled in the system as follows:
You may need to setup a new General Ledger Account if you do not already have one for this purpose. You can call it something like Vendor Pre-Payments. This new account should be in the range of your Cash Accounts. You will also need to change the Control Accounts for the Balance Sheet to include this new Account in the range of Cash Accounts. You can add the New Account and change the Control Accounts in General Ledger System, General Ledger File Maintenance.
When you are writing the check to pre-pay the Vendor you will write the check to the Vendor and code the Distribution Account to this new General Ledger Account you set up – Vendor Pre-Payments.
The value of the check will then show as a negative Asset until you actually apply the pre-payment to an invoice from the Vendor.
When the product arrives you will receive the Purchase order and Post it to Accrued Inventory Payable as usual.
When the Invoice arrives, enter the Invoice as usual, selecting your Purchase Order from the Accrued Documents.
The final step is to apply the pre-payment to the Invoice through Enter and Edit A/P Checks. When you do this you will select the Vendor Pre-payment Account instead of the Cash Account and pay the invoice
This will remove the Invoice from Accounts Payable and the Prepayment account will be reduced by the amount of the Invoice.