Accounting for vendor credits towards future purchase

ks-man · ‎August 08, 2019

I own a retail clothing store. We often send back styles to the manufacturer that don't fit well or are damaged. Depending on the circumstance we often will receive a credit towards a future purchase. I am struggling with how to handle this in Quickbooks Online. What I am trying to do is create an Accounts Receivable from the vendor and then in the future match it when we receive new merchandise. The issue I have is that it is often netted against a future credit card purchase and if I search for a match on a CC purchase it won't show me A/R in the match column. Below is my example: 1) Purchase two styles from Vendor X for $300 and allocate to inventory 2) Keep one style and return one style to Vendor X and receive $150 of credit 3) Debit A/R for Vendor X and Credit Inventory for $150 4) Purchase two new styles on credit card in future from Vendor X for $150 but receive $300 of inventory 5) ?? What I'd like to do now is match $150 to the earlier A/R to bring that balance to 0 and have $150 placed back in inventory. I can do a Journal Entry the other way but then I'm left with a +$150 and -$150 in A/R. I'd like to credit the original entry. How am I supposed to do this? Thanks!

Catherine_B · ‎August 08, 2019

Hi there, ks-man.

We may not use Accounts Receivable when handling credit from your vendor. Instead, you’ll want to record a Vendor Credit so you can apply it to your future purchases.

Here’s how:

Record a Purchase Order from your vendor.
Create a Bill from the purchase created.
Use Pay Bills to record the payment.
Then enter the credit using a Vendor Credit.
Under the Item details section, enter the Product/ Service.
Then, enter the credited AMOUNT.
Click Save and close.

The unapplied credit will show the moment you’ll pay your future bills.

After doing the process (Purchases Order> Bill > Pay Bills > Vendor Credit), you may not use Journal Entries anymore. Also, the Vendor Credit will reduce the Quantity on hand of your items.

Check out the Inventory Valuation Detail report to see an overview of your item's Quantity on Hand.

Reach out to me if you need more help.

ks-man · ‎August 08, 2019

Thanks for the comment. I don't use Purchase Orders as I think it will add too much time. I currently just review my credit card payments and have them go to inventory. I track our orders outside of Quickbooks to ensure we have the correct product mix and then mark off once we receive. Is there any way to do what I want with an A/R? If not I may just use an Asset account and increase/decrease the asset value based on the vendor credits with the specific vendor in the memo. This will at least keep my Vendor Credits separate from other A/R. Thanks.

MaryGraceS · ‎August 08, 2019

Hello there, @ks-man.

Let me share some clarification about vendor credit. When recording a vendor credit in QuickBooks, it's posted to AP account not in AR. The receivables shows money due to you from buyers, and payables indicates what you owe to creditors.

To track vendor credit in QuickBooks and apply it for future purchase, it's recommended to record the order in QuickBooks. You have three options: bills, expense or write checks.

If you want to apply a vendor credit toward any open or future bill, it's fine not to create a purchase order.

Here's how:

Click the Create icon.
Choose Vendor Credit.
Enter necessary information.
Click OK.

Then, apply vendor credits to a bill. Here’s how to do it:

Go to the Plus icon and select Pay Bills.
Select a bill for your vendor from the list.
Select the credit available for this vendor in the Credit Applied field.
Complete the information needed.
Click Save and close.

If you choose expenses or checks, you can enter a note to remind yourself about this credit in the future. But if you still prefer to use an asset account to record the credit, I recommend you consult an accountant to ensure your books are recorded correctly. Or, we can help you find an accountant.

Connect with us again if you have other questions about QuickBooks. Have a great day ahead.

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