We have a referral fee to pay to an architect who is a customer. I have read some posts with recommendations on how to record this to using Credit Memo and an Account named Referral Fee, but I am unclear on the mechanics.
I can create the Credit Memo in the Customer Center and list Design Services as the Item, which is also the category the invoice generating the referral fee uses. I don't understand how to record the expense/payment to settle the fee. Clicking the "Use credit to give refund" on the Credit Memo allows me to create a check, but doesn't let me tie it to a Referral Fee account or have it reduce the income received from the sale transaction.
Appreciate clarification on how to record the needed transactions. I am using QB Desktop Pro 2020 if it makes a difference in how to solve the problem.
Your current process will actually work, but there's a much easier way to do this.
Since the architect is a customer, you also want to create a vendor profile for them, so you can write them checks for the referral fee. Make sure the vendor name is slightly different from the customer name, like having a middle initial so you can save the profile. That will do it.
As for the goal of using the fee to directly reduce the income for a particular sale, you're unable to do that since you're declaring the fee as an expense. In fact, you're using an expense account. Therefore, they will be reported in your on your Profit and Loss accordingly, and you should get the right Net Income amount. In other words, whatever amount your customer pays you, that's your sales, and your referral expense is already out of the sales equation. I suggest referring this to an accountant. Then, please let us know if they have any advice so we can reflect them in QuickBooks.
If you use the sales income account on the item you used when paying for the architect and you use it on a credit memo and in the sales, this will directly reduce the sales income. However, you're not declaring it as an expense, but a contra-sales (income) instead.
So you'll have to choose whether you want to treat the referral fee as a contra-income or a expense. Please ask an accountant about this matter.
Let me know if you have other questions in mind. Have a good one!