applying a customer's credit to a payable

swampgoddess · ‎September 22, 2021

I've been struggling with this for months, and previous answers have not helped or have not addressed the question, so I'm going to try and rephrase it. (Quickbooks desktop 2021, BTW).

Short version of the question: Can you apply a customer's credit to a payable account?

Longer version: We have two separate companies with similar names. Acme Lab and Acme Ltd. Some customers pay for invoices from BOTH companies with a single check or ACH payment (in spite of our trying for years to get them to pay separately...) I need an easy way to receive the correct payment amount (that goes into the bank) and still separate what is owed to the other company.

When I record payment of an invoice, my ONLY OPTIONS are to refund the customer or to show a credit for that customer. I HAVE reviewed "Apply a payment from one customer that has invoices in more than one A/R account" at Common issues when applying a payment (intuit.com) However, this does not solve the problem - we have done the settlement manually for years by having a PAYABLE account for what one company has received for the other company (and now owes it to the other company). It seems that a Cash Receipt must be applied to an A/R account, and not a payable.

If I set up a "Lab owes Ltd" account (we call it "Ltd. Settlement Payable") then it's a payable for Lab, and the only way to get it off the books would be for Lab to generate an invoice/receivable in order to transfer $$ - and that's NOT what is happening. (In fact, that would be the opposite of what's happening!)

If I could apply the various credits (there are about 20 customers who do this, but only about 6 or so that do it regularly) to a payable account ("Due to Ltd."), then I could do the settlement by transferring the credits (customers' payments to Ltd) to Ltd. We were told we could set up "Lab Owes Ltd" or "Due To" accounts, but that still does not solve the problem of dealing with the choice of "refund customer" or "hold as a credit" when I record the receipt of the check in one company. This is what I've asked about in previous posts - and no one has had an answer for that.

We've done it on paper for years. For example, in the Lab Cash Receipts journal, we have columns for Cash Debit, A/R Credit, and Ltd. Settlement Payable Credit. At the beginning of the following month, Lab writes a check to Ltd. for the total of the Ltd. Settlement Payable Credit column. Those split payments are applied to Ltd's receivables and all balances.

AlexV · ‎September 22, 2021

Hi swampgoddess!

Thanks for posting again here. Let me assist you in recording your client's payment.

You can set up and use a clearing account. Clearing Account is used to move funds from one account to another. You can still record the full amount and leave the overpayment as credits. Then, we can simply create a journal entry to transfer it.

First, let's add the clearing account by following these steps:

Go to the Lists menu and select Chart of Accounts.
Press Ctrl + N on your keyboard. Choose Bank as the account type, then Continue.
Enter an Account Name like Clearing Account and don't enter an opening balance.
Tap Save & Close.

Once done, go to the Company menu and select Make General Journal Entries. Debit the A/R Account, make sure to select the customer's name, and enter the amount. On the credit column, select the Clearing Account you added and enter the same amount. Then, save it.

Then, create a new journal entry. Make sure to debit the Clearing Account and credit it to another account where you want it to transfer.

I added some articles you can check. These will explain more on how to use the clearing account in QuickBooks Desktop:

Journal entries can also be tricky. You'll want to seek some guidance from your accountant so it won't mess up your data.

Here's another link you can check: Resolve common issues when applying a payment towards an invoice. This will show you how to correct the common issues in recording customer payments.

Leave a comment below if you have other concerns. Take care!

swampgoddess · ‎September 22, 2021

Thank you, this is the clearest answer I've gotten so far! I have a couple of test companies set up to practice with so I don't really mess up my real companies. Right now, we are depositing every split payment into "Lab" and then Lab pays Ltd the money owed to it. I have set up the "Settlement" account (clearance account) as a bank account, and made the General Journal entries transferring the customer credits to the Clearing/Settlement account.

Next, I understand that I am to make another GJ entry to debit the Clearing/Settlement account and credit to another account where I want it to transfer. The account to which I want to transfer the funds is a bank account for another company, so I will transfer the funds to CASH.

I'm trying to set up a Cash account (because of the transfer headaches, we have not yet begun using QB for bank accounts). I am assuming that would be a bank account? (I'm used to thinking of the Cash account as an asset account, and will assume that a bank account is automatically an asset account! Sometimes QB looks a bit different...)

Then, when I write the check, do I list the payment in the "expenses" tab (it's not an expense) or the "items" tab? I don't know if that makes a difference or not, but don't want to mess things up later if it DOES make a difference.

Thank you again.

Giovann_G · ‎September 22, 2021

I'll assist you with that, swampgoddess.

Yes, you're right. Current assets include both cash and bank account. For simpler tracking, it's best to use a bank account. In any case, QuickBooks is used for recording purposes; any transactions you conduct have no impact on your actual bank account.

On the other hand, you can use the Expense tab if the transaction isn't related to any item. Then, choose the Item tab if you want to associate the transaction to the specific item. For further information, please see this article: Create, modify, and print checks. Here you'll find information that will help you better understand the details in the write check screen.

Also, I'd suggest reaching out to your accountant. This is to confirm that your books are accurate before making any transactions.

In addition, you can run the Transaction List by Date report under the Accountant & Taxes area to get the list of check you've created and filter it to only the Check transaction. I have this resource to learn in creating a report that just shows the information you need: Customize reports in QuickBooks Desktop.

If you have any more questions or concerns about moving funds or checks, please don't hesitate to post another response. The Community and I are here for you 24/7 to back you up.

swampgoddess · ‎September 23, 2021

Thank you! I am going to work through this a few times to see if I have any questions.

THANKS, EVERYONE!

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applying a customer's credit to a payable