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Dixon FDS
August 23, 2023
Solved

AR/AP Offset

  • August 23, 2023
  • 1 reply
  • 7 views

Vendor A is also our customer.  We would like to offset the only outstanding AR invoice due from Vendor A against one of the AP invoices partially and then pay the overall net AP Balance due to Vendor A. I have used a journal entry to transfer the respective AR balance to AP but the AR invoice still shows overdue. What is the best way to deal with this situation?  Thanks.

Best answer by Rainflurry

Hi Rainflurry,

Thanks for the reply.  Sorry for not responding to you sooner.

 

How to set up a Clearing Account?  Should the Account Type be "Bank"?  I did set up a Clearing Account under Account Type "Other Current Account" but this Clearing Account do not appear when I try to pay the bill.  


@Dixon FDS 

 

Yes, it needs to be set up as a Bank account, not an Other Current Asset account.    

1 reply

LieraMarie_A
LieraMarie_A
Level 8
August 23, 2023

Hello, @Dixon FDS.

 

It's great to see that you're actively working to address the situation involving vendor A's outstanding AR invoice and AP invoice. You're definitely on the right track.

 

After creating the journal entry to transfer the AR and AP balances, you need to follow up with a couple of specific steps to ensure the offset is properly reflected and the transactions are accurately recorded. First, you need to set up a temporary bank account called "Clearing Account" to hold the offsetting amount. 

 

Then, follow these steps:

 

Apply the Credit to the Invoice: 

 

  1. Click + New and then Receive payment.
  2. Select your customer who's also a vendor.
  3. In the Deposit to field, select the clearing account.
  4. Keep the Amount Received field as zero.
  5. Select the invoice.
  6. Under the Outstanding Transaction section, select the checkbox for the journal entry. If you have automation to apply bill payments turned on, this step is done for you.
  7. Select Save and close.

 

Pay the Bill: 

 

  1. Click +New.
  2. Select Pay Bills.
  3. In the Payment Account field, select the clearing account.
  4. Select a bill for your vendor from the list. You'll see the available credit with this vendor in the Credit Applied field.
  5. Select Save and close.

 

By following these steps, you'll successfully offset the outstanding AR invoice against the AP invoice and then pay the net AP balance due to Vendor A. 

 

Furthermore, I recommend performing account reconciliations. This practice helps identify any disparities between your QuickBooks records and your bank statements. It serves as a valuable tool for detecting errors like duplicate or missing transactions, as well as incorrect amounts.

 

Feel free to reach out if you need any additional assistance or guidance. Best of luck with your financial transactions. I'm here to help if you need anything else.

    D
    Dixon FDSAuthor
    August 24, 2023

    Thank you LieraMarie.

     

    Under Receive Payment, what should I choose/fill in under "Payment Method", "Deposit To" & "Amount Received" fields? 

    Under Pay the Bills, what would be the Payment account as there is no genuine payment from the Bank? I want to know the things that needs to be entered here

    Appreciate your help. Thanks.

    Nicole_N
    Nicole_NQuickBooks Team
    QuickBooks Team
    August 24, 2023

    Thanks for your follow-up, Dixon. Let me share a few things about recording transactions in QuickBooks Online and what you should fill in the fields you mentioned.

     

    The Receive Payment feature functions to record customer payments against their invoices. When creating it, you need to enter certain fields to complete the process. 

     

    In the Payment method field, you need to select the method from the dropdown on how the customer is making the payment. It could be through a credit card, debit, PayPal, Venmo, or ACH bank transfer. You can also enter a new payment method if necessary by clicking +Add new. 

     

    For the Deposit to field, this refers to the account where the received payment will be deposited. This is typically your bank account or a specific undeposited funds account if you want to combine multiple payments before depositing them in the bank. 

     

    The Amount received section is the amount that the customer has paid against the invoice. This should match the actual payment amount you received from the customer.

     

    Moreover, the Payment account when recording Pay Bills typically refers to the bank account from which you are making payments to cover your bills or expenses. It's the account from which the money is withdrawn to settle your financial obligations.

     

    Once done with the recordings, you'll want to have a snapshot of your business transactions to view details of it by running reports in your QuickBooks Online account.

     

    I hope that this information will aid you in initiating your task. Should you require additional guidance, please don't hesitate to respond to this message. Keep safe, and I wish your business continued success.

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