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Level 1

Have a customer that is also a vendor, The customer pays my invoice but deducts the amount for their vendor bill, How should this transaction be entered / accounted for?

I invoice a customer for services. I also purchase a product from that customer that is not related to services that customer is billed for. They send me an invoice for that product. When the customer pays my invoice they deduct the amount for the product I purchased(the amount of this invoice I received from them). Example: Customer B invoice #10 $500
                 Vendor B Bill #A2 $300
when I receive check from Customer B it will be for $200 paying invoice #10 with bill #A2 already deducted
How do I mark this invoice paid and mark the bill paid?
Solved
Best answer 10-19-2018

Accepted Solutions
ProAdvisor

Create a Bank Account called Transfer A/R & A/P Enter the...

Create a Bank Account called Transfer A/R & A/P

Enter the Bill in the Enter Bills Screen

Use the Pay Bills & at the bottom use the New Transfer Account you created. Enter the amount paid.

Customer Center > Receive Payments Screen. Enter what they are deducting > make sure it goes to Undeposited funds

Make a deposit > Deposit the amount into the Transfer A/R & A/P account.

This will zero out the account.

View solution in original post

35 Comments
ProAdvisor

Create a Bank Account called Transfer A/R & A/P Enter the...

Create a Bank Account called Transfer A/R & A/P

Enter the Bill in the Enter Bills Screen

Use the Pay Bills & at the bottom use the New Transfer Account you created. Enter the amount paid.

Customer Center > Receive Payments Screen. Enter what they are deducting > make sure it goes to Undeposited funds

Make a deposit > Deposit the amount into the Transfer A/R & A/P account.

This will zero out the account.

View solution in original post

Level 1

How would the invoice portion work?  The amount of the ch...

How would the invoice portion work?  The amount of the check is less than the invoice it's paying so it will show that they still owe us money
Level 1

Thanks for your answer, the above worked. The only concer...

Thanks for your answer, the above worked. The only concern is would it affect the reconciliation of the actual bank account?
Level 1

You don't reconcile that dummy bank.

You don't reconcile that dummy bank.
Level 2

I would do JE's.  I would not create a bank account calle...

I would do JE's.  I would not create a bank account called Transfer A/R & A/P as bank accounts are cash accounts and that is not a cash account.  When I do these types of transactions I have an account called Pre-paid where I put deposits we receive for jobs until the job is complete so when I have to do a JE for an A/P - A/R transaction I use that account.  

For Example - My customer is also my vendor - I owe them and they owe me.  This is how I take care of this transaction:

JE #1
Credit - A/R - In the name field attach the customer's name so it attaches to their account
Debit - This is where I use my pre-paid account because in the next JE I will credit it so it is in and out and does not affect my pre-paid account balance.

JE#2
Debit - A/P - In the name field attach the vendor name so it attaches to their vendor account.
Credit -  This is where I would credit my pre-paid account so it has gone in and out and has not affected my pre-paid balance at all.

Now you have to go to Customer - Receive Payments - Select the customer name and there should be a credit to apply towards the invoice.  If its not enough to pay their invoice there will be a balance due.  

Then you need to go to Vendor - Pay Bills -  Select the bill to pay and there should be a credit to apply to the bill that you owe.  If the bill is more than the invoice that they owe you in the amount to pay column you will see the balance that you owe them.  If you do not want to pay the balance that you owe them and you just want to apply the credit change the amount in the amount to pay column to zero and select pay selected bills.  If you want to pay the balance do not change the amount in the amount to pay column and print a check for the balance due.

I hope you are able to understand this.  The mistake most people make when doing this is not going and receiving the customer payment and applying the credit and same with the vendor they dont pay the bill and apply the credit.  If you dont do this the customer balance will look ok but the invoice will still be open and appear like it has not been paid and the same with the vendor if you do not go pay the bill and apply the credit the balance in the vendor list will look ok but the bill will still show up as due so those steps are important.  

If you have any questions about this please feel free to ask me.
Level 2

Also, I use a desktop version of QB's.  I am not sure if...

Also, I use a desktop version of QB's.  I am not sure if you use the desktop version or online and I am not sure if online functions work the same way.

The type of account that the pre-paid account that I use for these transactions is other current liability.  Like I said using this account for those transactions does not affect my balance for my pre-paid account because its going in and coming right back out.  You could create a generic account called AP/AR transfers and use that if you didn't want to mix these transactions into another account but the type of account I would use would be other current liability not a bank account because as I stated before bank accounts are cash accounts.   
ProAdvisor

Apply to the invoice what they paid. Leave the remaining...

Apply to the invoice what they paid. Leave the remaining balance as an open invoice.
Level 1

But it's really not an open invoice so how do I zero out...

But it's really not an open invoice so how do I zero out the remaining balance
Level 1

Disregard - I got it figured out.  Thank you!

Disregard - I got it figured out.  Thank you!
jb6
Level 1

Do you mind sharing your process that you figured out?

Do you mind sharing your process that you figured out?
Level 1

JB When you make your deposit use your "Transfer account"...

JB When you make your deposit use your "Transfer account" as the From Account and then put the amount as a negative.  Trued up my deposit and cleared out my transfer account.
Level 1

Re: Disregard - I got it figured out. Thank you!

Can you tell me what you did. I also have a vendor that takes what I owe off my bill and don’t know what to do. Thnks

Level 15

Re: Have a customer that is also a vendor, The customer pays my invoice but deducts the amount for their vendor bill, How should this transaction be entered / accounted for?

You reconcile the clearing bank, which should always have a $0 balance, or you didn't do the Clearing or Barter process properly.

 

And there is no JE for the process where Names are involved. You already have Sales and Purchase data; there is no JE in addition. You use the proper functions, so that vendor name vs customer name is respected for the activity types of Purchases and Sales. A JE also bypasses your Cash vs Accrual basis reporting. You don't need more activity. You already have:

Sales, but the payment is "virtual" as bartered.

Purchases, but the payment is "virtual" as bartered.

 

And Clearing Bank = 0, as wash of the funds value, not real money traded.

Level 1

Re: Have a customer that is also a vendor, The customer pays my invoice but deducts the amount for their vendor bill, How should this transaction be entered / accounted for?

Thanks for the answer, I didn’t do clearing but will. I just follow comments from above but make clearing account. I’m new and have been entering wrong because I wanted deposits in account, I haven’t reconciled in qb because I knew something wasn’t right. Thanks hope I can go back I have a couple to do. I appreciate your response

Level 1

Re: I would do JE's. I would not create a bank account calle...

I did the journal entries.  Applied credit to bill. Prepaid account is zero-ed out, BUT, there is no available credit to apply in the Receive Customer payment window.  Credit AR with Customer Name.  Debid Prepaid.  When I open the AR account register, I see the JE, the credit amount is there with the customer name, but there is no credit in the receive customer payment window. I am on desktop QBs Pro 2017.

Level 15

Re: I would do JE's. I would not create a bank account calle...

@findnumber9

 

 

There should be No JE when Names are involved. You don't use JE for Sales or AR or AP, either. You should not have a JE for AP or AR in any QB program. You use a Clearing Bank to process the funds "virtually" that reflects what really happened for each name and type of event.

 

JE for AR and AP are not the right tool. You just bypassed Sales and items and all customer/vendor reporting functions.

 

Do it with a Clearing Bank, not as JE. Receive Payments, deposit to Clearing Bank and Pay vendors that same amount from the Clearing Bank. This is Barter.

Level 1

Re: Create a Bank Account called Transfer A/R & A/P Enter the...

Why can't quickbooks resolve this so that we can do this and ledger adjustment in one transaction?

 

 

 

Level 15

Re: Create a Bank Account called Transfer A/R & A/P Enter the...

"Why can't quickbooks resolve this so that we can do this and ledger adjustment in one transaction?"

 

Because thinking of this as an "AP/AR Swap" is bypassing all the Rules requiring the reporting of Gross Revenue, Gross Expense, sales, taxes, etc. The swap is a Barter event, not a Swap of AP for AR. It is instead of Real Money. And the Cash vs Accrual Basis reporting matters to nearly everyone.

Level 2

Re: Create a Bank Account called Transfer A/R & A/P Enter the...

How are you bypassing all of the rules for reporting gross revenue by doing a JE for payments?  The revenue is recorded when you create the invoice and the expense is recorded when you enter the bill so all of your revenue and expenses are recorded.  You are NOT receiving any cash when the invoice owed to you is being paid with a bill that you owe your vendor, so why would you use a cash account when there is no cash involved in the transaction?  Doing a JE to credit AR and applying that credit to AP to pay the bill that you owe is not bypassing anything.  When you write a check to pay a bill it creates a debit to the AP liability which is the same thing that happens when you create a JE and debit AP and when you receive a customer payment it creates a credit to the AR which again is same thing that happens when you create a JE that credits AR.  I have been doing transactions like this in QB's for over 10 years.  My accountant told me that Barter should NOT be created as a checking account because that is a cash account and there is NO cash exchanged with Barter.   Please explain to me how revenue, expenses, etc. are being bypassed by recording a payment using a JE when that JE is creating the same debits/credits that writing a check for a bill and receiving a check for a payment does.  

Level 15

Re: Yes, you just bypassed nearly everything

"Doing a JE to credit AR and applying that credit to AP to pay the bill that you owe is not bypassing anything."

 

You just bypassed Cash vs Accrual basis reporting. You just bypassed having a "payment" type activity for Bill Payment and for Invoice Payment.

 

It's best to avoid JE for Names. You already have Real Names to use on Real Transactions for names: vendor and customer transactions, not brute force accounting entries as JE.

 

"so why would you use a cash account when there is no cash involved in the transaction?"

 

It's called Barter. It is Virtual Funds, swapping of Values that is the same as full payment.

 

The Intuit instructions for Barter are right here:

https://quickbooks.intuit.com/community/Reports-and-accounting/How-to-record-a-barter-transaction/m-...

Level 15

Re: Bad Guidance

This is bad guidance, "My accountant told me that Barter should NOT be created as a checking account because that is a cash account and there is NO cash exchanged with Barter."

 

The point is that it ends at 0 for any one date; that is the point of Barter = no Balance exists. It is a Clearing or Wash account, but now you get to use Real Transactions, such as Check Expense for the vendor name as Payee so that it reports on the 1099-Misc. Or, Bill Payment, if you are bartering a partial amount. And real Sales Payment, too, which might be against an invoice or simply done using a Sale Receipt "deposited" to Barter.

 

These are Tools. Your accountant will see you are giving the right outcome, but now you are using the right Transaction Types in QB, too.

Level 2

Re: Yes, you just bypassed nearly everything

You still have to receive a customer payment and pay a bill using the credit that the JE created.  Nothing is being bypassed.  ALL income, expenses & payments are being recorded the exact same way they would be if I received a customer payment with a check or paid a vendor bill with a check.  

Level 1

Re: Yes, you just bypassed nearly everything

Thank you so much for that link I have been trying to figure this out for a year

Level 1

Re: Have a customer that is also a vendor, The customer pays my invoice but deducts the amount for their vendor bill, How should this transaction be entered / accounted for?

I have the same issue -- my landlord is one of my clients, so I wanted to be able to deduct the rent from any invoices. Here is what I did:

 

  1. I created a new, non-inventory, product called "Office Rent" and then created a new category called "Credit".
  2. I checked the box: "I sell the product/service to my customers." (you have to check this to allow it to be added to invoices).
  3. In the sales price, I used a negative number
  4. In the Income Account selector, I used the expense account for Rent (use the account you would assign the expense to normally)
  5. I checked the box: "I purchase this product/service from a vendor"
  6. I entered the actual cost 
  7. I associated it with the proper expense account (in my case, Rent)
  8. I assigned the prefered vendor

This works! My expense still tracks to my expenses in my reporting. 
I have attached a screenshot of my setup...

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