Prepayment Invoice

There are two types of prepayments:
Temporary and Permanent.

Temporary prepayments can be applied to invoices or expense reports you receive.
For example,you use a Temporary prepayment to pay a hotel a catering deposit. When the hotel's invoice arrives, apply the prepayment to the invoice to reduce the invoice amount you pay.

Permanent prepayments cannot be applied to invoices.
For example, you use a Permanent prepayment to pay a lease deposit for which you do not expect to be invoiced.

You can apply the available amount of Item type distributions from a Temporary type prepayment to one or more invoices to offset the amount you pay on the invoice(s). If you entered the prepayment as a Permanent type and want to apply it, you can query the prepayment in the Invoices window and change the Prepayment Type to Temporary.

Prepayment Applications Options
Apply
Prepayment on Invoice

The "Prepayment on Invoice" option is to be used only when the Invoice Amount of the Standard invoice already includes the prepayment application.
If this option is used the negative PREPAY lines and distributions are used along with the other lines and distributions when placing variance holds. When that option is not used PREPAY lines and distributions are excluded when placing variance holds.

Prepayment Applications should typically be made with the "Prepayment on Invoice" unchecked.

Prepayment Applications should not be made with the "Prepayment on Invoice" option checked unless it is certain that the prepayment amount has already been included in the Invoice Amount. 
This would mean that the SUM of the Lines and Distributions for the invoice prior to the prepayment being applied is more than the Invoice Amount.

To correct an existing application done with "Prepayment on Invoice" checked.
unapply the prepayment  application and then reapply it with the Prepayment on Invoice box unchecked.