How to: Zeroing out Vendor Account?

Let me help you write off vendor balances in QuickBooks Desktop, Erss.

You may have small balances that are the result of an error, an overpayment, or an underpayment. This costs more time and materials to collect or pay the amount due than it would be to clear it from your accounts. We can zero out the balances to remove the amounts. Let's make sure to consult your accounting professional before trying any of these options. We can create a General Journal Entry to write off the amount. 

1. From the Company menu, select Make General Journal Entries.
2. In the Make General Journal Entries window, change the date and fill in the entry number if necessary.

For vendors with overpayment:

1. Click the Account field and select Accounts Payable from the dropdown list.
2. Enter the amount under the Credit column, tab to the Name column, and select the vendor name from the dropdown list.
3. In the next line, choose the offset account and enter the amount under the Debit column.

For vendors with underpayment:

1. Click the Account field and choose Accounts Payable from the dropdown list.
2. Enter the amount under the Debit column, tab to the Name column, and select the vendor name from the dropdown list.
3. In the next line, select the offset account and enter the amount under the Credit column.
4. Press Save & Close.

Then, apply the journal entry to the existing debit/credit:

1. From the Vendors menu, select Pay Bills.
2. Select the bill and choose Set Credits.
3. Under the Credits tab, select the available credit and select Done.
4. Press Save & Close.

You can check out this article for more details: Write off customer and vendor balances. I've added this link about what reports we can run to review your financials: Understand reports.

I'll lend my ears if you have other concerns regarding your vendor entries in QuickBooks. I'll make sure to work something out for you. You have a good one. 

When an account is in the Negative is that overpayment?

Also, what account would we need to debit this to?  We need to create an Offset account?  If so, what type of account would that be?

Thanks for coming back to us, Erss.

Yes. If the account balance is negative, it typically indicates an overpayment to the vendor.

Furthermore, I suggest seeking guidance from your accountant to help you choose the correct account.

I've added an article to assist with recording your vendor's credit for future reference: Transfer and apply credit from one vendor to another.

You can post an update if you have other questions regarding refunds and vendor accounts in QuickBooks. I'll be happy to share more information. Take care.

@Erss 

"Also, what account would we need to debit this to? We need to create an Offset account? If so, what type of account would that be?"

Do you use cash or accrual basis?  If you're on cash basis, you can zero out the bills to clear the balance.  If you use accrual basis, there's no need to use journal entries (JEs).  A bill or credit memo will do the same thing.  If the vendor has a negative A/P balance, create a bill.  If they have a positive A/P balance, create a credit memo.  As you're aware, the offset account is the tricky part.  That's why it's best to go through the A/P vendor balances and determine why the balance exists. 

What you're trying to accomplish is moving the A/P balances to your P&L so the offset account needs to be an income or expense account.  You could set up an expense account called 'A/P Offset'.  That looks messy IMO but at least it will clear the A/P balances and move them to your P&L and your CPA/tax accountant can reclassify that for you.  Ideally, you'd dig into the A/P balances and determine the proper accounts because not all A/P balances are the result of expenses.  You could have asset purchases that are creating the balance.  In any case, once you have created the credit memos or bills, make sure to apply them to the A/P balance by going to Pay Bills and applying them to all the outstanding transactions.    

Cash based, how would I zero out the Negative?

There was a QB error, and once its fixed, everything became negative because there were a bunch of payments from before that was paid but now unpaid.  Had to pay those, then the credit showed up. 

@Erss 

"Had to pay those, then the credit showed up."

So, the negative balance is correct in the sense that you have paid actual expenses, correct?  If that's the case, then create bills for the amount of the credits and apply the credits to the bills using Pay Bills.  Assign an appropriate expense account to the bills as needed.  Date the bills the same as the payments otherwise you will have an unapplied cash expense on your P&L between the dates of the payment and the bill.      

"So, the negative balance is correct in the sense that you have paid actual expenses, correct? "

Yes, they were paid, but QB file had errors, then all these bills came up.

With the Negative (credit), and cash based system.  Do we still follow your steps?

@Erss 

Yes,

For the Offset Account.

Should this be setup as Income/Expense or Other Account Types?

@Erss 

I'm not sure we're on the same page.  You mentioned you have a negative A/P balance but then also mentioned "Yes, they were paid, but QB file had errors, then all these bills came up."   Bills create a positive A/P balance, not a negative A/P balance so I'm confused as to which you have.  The bottom line is if you have negative A/P balances for a vendor, you need to create a bill and then apply the credit to the bill.  If you have a positive A/P balance, you need to create a credit memo and apply that to the bill.  The accounts you use on the bill or credit memo are up to you and should match what the expense was.  Because you're on cash basis, when you apply the bill or the credit memo, make sure the payment date in Pay Bills is what you want it to be because that's the date that the transactions hit your financial statements.    

Negative (credit) was created by QB after an error.... there was a bunch of bills that needed to be paid from years past after it corrected some errors. 

Now we just want to zero it out.  To do this steps were given.  Now the question is for the Zeroing out account, what should that be set as.

Thanks to everyone's help!

None of the suggestions worked, because there is a Quickbooks system error that have created these credits.  So whenever there is a actual equal debit vs credit, the credit amount is still there.

We just created a bill for whatever the credit amount for the vendor, so on the surface it looks like we have a zero balance, but they now have a mass amount of credit.

Anyway to get rid of the credit?  just use that offset account?