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Prepaid hours of service

If you provide a service on a prepaid hourly basis, you'll need to set up your company file to track the prepayments and accurately record the sale when the service is performed.

First, you'll create a liability account and two new inventory items: one item for tracking the sale of prepaid hours, and one item for tracking the income generated when prepaid hours are consumed.

Let's take you through the details using the following example:


A business offers piano lessons in prepaid hourly blocks, and students need to pay for 5 hours in advance. Chris, a valued customer, wants to purchase 5 prepaid hours of piano lessons.

But no matter your business' specifics, these steps and principles will work for your prepaid hourly service.

Before you begin

Before recording your prepayments, you first have to create a liability account and two new inventory items.

Recording the prepayments

OK, you're all set to record the prepayments. First, you'll invoice the customer prepayment, then when your customer uses their prepaid service. you'll reduce their liability with another item invoice.

Reporting on prepayment balances

If you're ever wondering how many units of prepayment a customer has or owes, or you're after your company liability, all you need to do is create a sales report.