Prepayment Cycle
Module: Accounts Payable
Dynamics 365 Finance and Operation
Date: May 19, 2025
Created By Rimsha Khan
Reviewed By
TABLE OF CONTENTS
Purpose:.................................................................................................................................. 3
Step 1: Create a Purchase Order.......................................................................................... 3
Step 2: Enter Line Details..................................................................................................... 4
Step 3: Confirm Purchase Order...........................................................................................5
Step 4: Apply Prepayment.................................................................................................... 5
Step 5: Prepayment Invoice Posting.....................................................................................6
Step 6: Vendor Payment Journal..........................................................................................7
Step 7: Enter Payment Details............................................................................................. 8
Step 8: Settle Transactions.................................................................................................. 9
Step 9: Validate and Post Payment....................................................................................10
Step 10: View Voucher....................................................................................................... 10
Step 11: Generate Receipt List...........................................................................................10
Step 12: Product Receipt.................................................................................................... 11
Step 13: Create a Complete Invoice...................................................................................12
PURPOSE:
This document outlines the step-by-step process for handling prepayments in D365. The
purpose of the prepayment is to record an advance payment made by the customer to the
vendor before goods or services are delivered. This ensures the vendor receives a portion of
the total amount upfront as per the agreed purchase terms.
STEP 1: CREATE A PURCHASE ORDER
1. Navigate to Accounts Payable > All Purchase Orders.
2. Click on New to create a new purchase order.
3. In the purchase order creation form:
Select the Vendor Account from the dropdown list.
Select the Site and Warehouse.
4. Click OK.
STEP 2: ENTER LINE DETAILS
1. The Purchase Order form will appear.
2. Under the Lines section, enter the following:
o Item number
o Quantity
Item Number (Mandatory) Select the item to be purchased.
Product Name Automatically displayed after selecting the
item.
Procurement Category Optional. Used for non-inventory items.
Variant Number If applicable, choose the product variant.
Site (Mandatory) Choose the site location.
Warehouse Specify where items are to be received.
CW Quantity / CW Unit Catch weight if applicable.
Quantity / Unit Enter the number of units ordered.
Adjusted Unit Price Modify price if needed.
Discount / Discount Percentage Enter any applicable discounts.
Net Amount Automatically calculated.
Adjusted Net Amount If price or discount is changed.
Quality Order Status Indicates the quality check status.
Receive Now / CW Receive Now Quantity to be received currently.
Load ID If part of a logistics load.
3. Click on Save to retain the entered information.
STEP 3: CONFIRM PURCHASE ORDER
1. Navigate to the Purchase tab on the ribbon.
2. Click on Confirm to confirm the purchase order.
STEP 4: APPLY PREPAYMENT
1. Go to the Purchase tab on the purchase order.
2. Click on Prepayment.
3. Enter all the details relevant to Prepayment and click on Save.
4. Under the Invoice section, select Prepayment Invoice.
STEP 5: PREPAYMENT INVOICE POSTING
1. In the Prepayment Invoice form, Enter an Identification Number.
2. Click on Update Match Status to validate the invoice line against the order.
3. Once validated, click Post to post the prepayment invoice.
STEP 6: VENDOR PAYMENT JOURNAL
1. Navigate to Accounts Payable > Payments > Payment Journal.
2. Click on New to create a new payment journal.
3. Select Vendor Payment (VendPay) as the journal name.
4. Click on Lines to enter the payment details.
STEP 7: ENTER PAYMENT DETAILS
1. In the lines form:
Select the Vendor Account.
Set Method of Payment to Electronic.
STEP 8: SETTLE TRANSACTIONS
1. With the line selected, click on Settle Transactions.
2. A list of open transactions will appear.
3. Mark the relevant prepayment invoice.
4. Click OK to settle the transaction.
5. The Payment Amount will be automatically retrieved.
STEP 9: VALIDATE AND POST PAYMENT
1. Click on Validate, then from the dropdown, select Simulate Posting to preview.
2. After validation, click Post to post the payment journal.
STEP 10: VIEW VOUCHER
1. After posting, click on Voucher to view the accounting transactions created.
2. Review the accounting transactions:
Ledger Account: 200110- The company recorded a $449.50 liability to a vendor
001- (Accounts Payable - using the "Accounts Payable - Other" account.
Other)
Ledger Account: 110110- The company paid $449.50 from the USD bank account
001- (Bank Account - USD) to settle that liability.
STEP 11: GENERATE RECEIPT LIST
1. Go to the Receive tab.
2. Click on Receipt List.
3. In the dialog box that appears, click OK to generate the receipt list.
STEP 12: PRODUCT RECEIPT
1. Still under the Receive tab, click on Product Receipt.
2. Enter the Product Receipt Number in the respective field.
3. Click OK to post the product receipt.
STEP 13: CREATE A COMPLETE INVOICE
1. Under the invoice tab, click on Invoice.
2. As partial payment is already made (in this case about 50%), click on Apply
Prepayment to account for the previous payment made.
3. Select the transaction and click on Apply Prepayment.
4. Enter the Invoice Identification Number.
5. Click on Update Match Status.
6. The Match Status is Passed.
7. Click on Post.
8. Click on Invoice under the Journal Tab.
9. Click on view accounting to analyze the transactions.
Following is the Prepayment Transaction made previously.
Vendor balance (200110-001-) A $449.50 debit reduces the liability to the
vendor after applying the prepayment.
Prepayment application (132190-001-) A $449.50 credit reduces the prepayment
asset since it's now applied against the
vendor invoice.
Following is the result of the complete transaction made.
Vendor balance (200110-001-) A $449.50 credit records a liability to the
vendor, indicating that the vendor is owed
this amount.
Prepayment (132190-001-) A $449.50 debit records a vendor
prepayment asset, showing that payment
was made in advance before goods or
services were received.