deducting from a vendor payment to pay an invoice

I know a way how to deduct expenses from your vendor's payment without invoicing them, @chocolady9.  Allow me to guide you through the steps to ensure a smooth and effortless process.
 

In QuickBooks Online (QBO), you can create a vendor credit that you can apply toward any open or future bills to make sure the credit hits the expense account you use for your vendor. Here's how:

Step 1: Create a vendor credit
 

1. In your QBO account, click on +New, then select Vendor credit.
2. In the Vendor dropdown, select your vendor.
3. Depending on how you record purchases with this vendor, enter the Category details or Item details.
4. Select Save and close.

Step 2: Apply vendor credits to a bill
 

1. In your QBO account, click on +New, then select Pay bill.
2. Select a bill for your vendor from the list. You'll see the available credit with this vendor in the Credit Applied field.
3. Complete the rest of the fields like you normally do.

For detailed information, kindly visit: Enter vendor credits and refunds in QuickBooks Online.

You can also check out this article to learn how to get a snapshot of your business in QuickBooks: Run reports in QuickBooks Online.
 

I'm still all ears if you need further assistance with your expenses, running reports, etc. Just add your reply below and I'll circle back to help you.

My Vendor is also a Customer.  Would it be better to do a journal entry to move the payment to the invoice?

Would that connect the transactions better?

I'd like to jump in and assist you with any inquiries you have regarding using vendor payments to settle an invoice, chocolady9.

Creating a journal entry offers an alternative method for recording transactions that cannot be captured using regular transactions, such as offsetting entries within Accounts Receivable (A/R) and Accounts Payable (A/P) accounts.

You can use a barter or wash account to connect the payments if there's an exchange of goods or services without the use of cash. Allow me to share all the details with you.

First, set up a barter bank account by following these steps:

1. Go to Gear or Settings ⚙ icon and select Chart of accounts.
2. Click New to create a new account.
3. Select Bank for Account Type, then choose Cash on hand for the Detail Type.
4. Enter the account name. (ex. Barter Bank Account)
5. Click Save and Close.

Second, open the invoice to receive the payments. Then, deposit the funds to the barter bank account. Here's how: 

1. Open the invoice and click Receive payment.
2. Select the name of the vendor that's also a customer in the drop-down list for Customer.
3. Fill in all the required details.
4. Enter “Barter” in the Name field, then select Save.
5. Make sure to select your barter bank account in the Deposit to ▼ dropdown. 
6. Click Save and close.

Lastly, pay the bill using the funds that are deposited in the barter bank account. 

Please note that barter transactions may have tax implications. With that in mind, I recommend checking with your accountant to ensure that your bookkeeping records remain accurate and in compliance with tax regulations.

Allow me to share these resources as well in case you need more guidance with customer and vendor balances:

• How Accounts are Affected by Debits and Credits
• Manage Outstanding Balances for Customers and Vendors in QuickBooks Online

Feel free to reply to us again if you have follow-up questions about the steps that I shared. We're always here to provide help and support if you need anything else from us.

Do you create an invoice for what the contractor owes you, or do you just deduct it from their pay?

Welcome to the thread, btks. We are pleased to have you here and value your participation in the Community. We'd be glad to assist you in recording the payment that the contractor owes you.

It's our pleasure to have you utilize QuickBooks Online to assist you in managing your business activities. Let us guide you through the process of recording the transaction within your program:

1. Create a bill for your contractor

1. Select the +New icon.
2. Choose Bill under VENDORS.
   
   
    
3. Fil in the necessary fields. Hit Save.
   
   

2. Generate a vendor credit

1. Click the +New icon.
2. Under VENDORS, select Vendor Credit.
   
   
    
3. Fill in the same vendor and category.
4. Enter the amount that your contractor owes in the Amount field.
5. Tap Save and Close.
   
   

3. Go to the Pay bills page

1. Select the +New icon, then choose Pay bills under VENDORS.
2. Check the contractor's name.
3. You have the option to Save, Save and Print, or Schedule payments online.
   
   

Feel free to browse these articles for more information about hills and vendor credits: 

• Create and apply credit memos or delayed credits in QuickBooks Online
• Enter vendor credits and refunds in QuickBooks Online
• Enter and manage bills and bill payments in QuickBooks Online

We are happy to help you with anything related to QuickBooks. Please do not hesitate to contact us by clicking the Reply button or creating a new post in the Community. We wish you a successful year, btks!