Deduction from a payment we received to "pay" for previous bills.

prkimmel · ‎May 16, 2024

We are a professional society keeping our books in QBDesktop Pro. Our dues are collected by our National and sent by ACH to us. National also provides occasional monthly services that are expenses for us. They bill for these services and later, sometimes much later, deduct from their dues remittance to us the amounts due for these expenses. E.g.,

- Services of $50 each are billed us over time and are entered as Bills to National as a vendor. In the past, we paid these bills by check, but National is now deducting them from what they send us for dues. Their deductions can be quite later than the posting of the original bills.

- As the original bills come in, their postings correctly result in dr. Service Expense, cr. A/P for the appropriate months each service was performed. Let's say we received and recorded $50 bills for April, May, and June. So, the entries for those months were $50 for each of the months, totaling $150.

- Let's say we receive $4,000 in dues in August, from which National has deducted the $150. When we receive the dues, the ACH bank deposit is then $3,850. I need to record a Bank Deposit of $3,850 in order to reconcile precisely with the bank. (We do not take a bank feed from the bank. We reconcile manually in Quick Books.)

- I record the Deposit with this entry: dr. Dues Income $4,000 and dr. Service Expense, with the implicit cr. Bank Cash.

- The obvious wrong result in QB is that Service Expense is debited twice and we have $150 stuck in A/P. While I could do a correcting entry of dr. A/P and cr. Service Expense, I don't know how I would associate this dr. A/P with the three charges recorded earlier so that the Vendor activity shows that these bills have been paid.

1. How do I fix this?

2. Should I have processed entries in QBD differently? If so, how? I need the expenses to show in the proper months.

prkimmel · ‎May 16, 2024

Maybe a solution that fully works is to:

1. Enter a credit memo for the amount that corresponds to the deduction taken for the prior service bills. Cite the vendor in this.

2. Then, we see in the Vendor Center, the credit for the full amount of the service bills as well as the bills themselves. The problem here is that the credit is not associated with the bills.

3. So, now go into each of the service bills (or all of them together), select it (them), then select Pay Bill, choose Check, and then click on Set Credits.

4. Apply the credit to the selected bill.

5. Voila, we're successful!

4. Accept

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prkimmel · ‎May 19, 2024

Exactly. We are on accrual. Thus, I must enter the invoices when the expense is incurred, which is well before the deduction taken by National from the dues they send us. That is why the only solution that I see working is the one I explained earlier, through the use of a credit memo created when the dues (net of service fees) are sent us by National. And that is the method I used successfully.

View solution in original post

Rasa-LilaM · ‎May 16, 2024

Thank you for visiting the Community, prkimmel.

We'll have to use the Accounts Payable (AP) account instead of Service Expense to track the services and pay the bills to clear the outstanding balance. I will guide you through the steps to ensure your records are in order.

To change the category:

In your company, head to the Banking menu on the left panel and select Make Deposits.
Look for the deposit you've previously created.
Once found, change the posting account for the service to Accounts Payable (AP).
Tap the Save & Close button to apply the changes.

To pay the bills and link the check:

Navigate to the Vendors menu at the top bar and choose Pay Bills.
From the list, mark the bill you're working on and select Check from the Method drop-down.
Tap the Set Credits menu to open the Discount and Credits window.
Review the transaction in the Credits tab and ensure the credit amount and amount to use are correct.
Select Done.
Press the Pay Selected Bills button to complete the process.
Perform the same steps for the remaining bills.

Feel free to review this article for more insights about managing unpaid bills: Bill shows as unpaid after writing a check in QuickBooks Desktop.

Explore these resources to learn the various methods for managing vendor transactions and refunds:

Keep me updated if you have additional vendor-related concerns or need help with your bills and payments. I'll be ready to provide the support you need.

prkimmel · ‎May 16, 2024

Early on, you say to change the Make Deposit entry link to A/P rather than to the bank. To my understanding, this just creates another problem. If I do this, then the portion of the bank deposit that is for dues income is pointed to A/P rather than to Income. Alternatively, if I split the deposit in two (one part for the dues receipt, posted to the bank, and the other part for the deductions related to the prior invoices, then the deposit is split in two and does not relate to the deposit recorded to the bank. Please comment further.

prkimmel · ‎May 16, 2024

Maybe a solution that fully works is to:

1. Enter a credit memo for the amount that corresponds to the deduction taken for the prior service bills. Cite the vendor in this.

2. Then, we see in the Vendor Center, the credit for the full amount of the service bills as well as the bills themselves. The problem here is that the credit is not associated with the bills.

3. So, now go into each of the service bills (or all of them together), select it (them), then select Pay Bill, choose Check, and then click on Set Credits.

4. Apply the credit to the selected bill.

5. Voila, we're successful!

4. Accept

Rainflurry · ‎May 17, 2024

@prkimmel

IMO, the easiest and best way to record A/R and A/P offsets is to use a clearing account as a temporary holding account. Set up a bank account in QB called 'Clearing Account'. In your example above, enter the three $50 bills for April, May, and June and enter the $4,000 invoice for August. Pay the $150 in bills using the newly-created Clearing Account. Then, receive payment on the invoice for $150 and deposit it to the Clearing Account. There's now $3,850 due on the invoice which matches the payment received from National and the Clearing Account balance is $0.

prkimmel · ‎May 18, 2024

Your solution does not work for the case I described, as in my case there is no involvement with Accounts Receivable. We do not bill National as we don't know the dues they receive to pass on to us, so there can be no A/R entry. However, the solution I proposed, before you helpfully tried to offer a simpler solution, works. I have now used my credit memo approach and it was successful.

Rainflurry · ‎May 18, 2024

@prkimmel

It will work just fine. If you create the invoices at the time you receive payment, the A/R posting is cleared immediately by the payment receipt. Obviously you don’t bill National, the invoices (like credit memos) are used to allocate the income to proper period. Glad you found a process that works for you.

prkimmel · ‎May 19, 2024

Sometimes it takes quite a few months for National to deduct the service fees. If I wait until then to post the service fee expenses, I will have incorrectly reported financials for the prior months. I cannot do that.

Rainflurry · ‎May 19, 2024

@prkimmel

The expenses should post when they are incurred if you’re on accrual basis or paid if you’re on cash basis - I’m not sure which you are. In either case, dating bills as of the date incurred is the best way to do that. Credit memos work too.

prkimmel · ‎May 19, 2024

Exactly. We are on accrual. Thus, I must enter the invoices when the expense is incurred, which is well before the deduction taken by National from the dues they send us. That is why the only solution that I see working is the one I explained earlier, through the use of a credit memo created when the dues (net of service fees) are sent us by National. And that is the method I used successfully.

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Deduction from a payment we received to "pay" for previous bills.