In some countries, you must declare tax on a prepayment. This practice is common in Eastern European countries. For example, if you prepay a supplier and if the supplier subsequently does not ship goods or provide services within a certain time period, the supplier must issue a tax invoice.

The AP Prepayment Tax Reconciliation process lets you add identifiers to link prepayments, tax invoices, and final invoices and then perform reconciliations for audit purposes.

In the AP Prepayment Tax Reconciliation process, you create supplier prepayments and record them in the system using reconciliation keys to identify them.

If the tax on the prepayments needs to be declared, you create a tax invoice for the prepayment tax amount and assign the same reconciliation key.

Before you receive the final invoice from the supplier, you can record multiple prepayments and multiple corresponding tax invoices.

When the supplier ships goods or provides services, you receive and record the final invoice. At this time, you create the final invoice in QAD EE with an identifying reconciliation key, You must then reverse the tax invoice that you created previously, run Open Item Adjustment Create to link the prepayment, final invoice, tax invoice, and tax invoice reversal so that QAD EE can track the whole process using one adjustment record.

The detailed flow is the same as that described for accounts receivable in AR Prepayment Tax Reconciliation.