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jhines
Level 2

How can I show an invoice is paid if the payment was reduction of debt in lieu of cash? I sold $2000 of goods for which my customer agreed to cancel $2000 that I owed him

I have a pre-existing Note Payable from the customer of $2000. When he made the purchase, I issued an invoice for $2000+sales tax. He then told me that instead of paying, he would like to just cancel the Note Payable that I owe him, and have me charge his credit card for the sales tax. I agreed with that.

I can use Receive Payment to charge his card for the sales tax, but I can't find a way to use Receive Payment to account for the $2000 on the Note Payable.

Would I do a direct journal entry to account for this, and if so what would the entry be? Or is there some other way to handle it?

Thanks to anyone who can help me!
Solved
Best answer February 08, 2020

Best Answers
JonpriL
Moderator

How can I show an invoice is paid if the payment was reduction of debt in lieu of cash? I sold $2000 of goods for which my customer agreed to cancel $2000 that I owed him

Hello @jhines

 

You can create a journal entry to transfer the invoice payments to your loan payable.

  1. Go to the Plus icon.
  2. Under OTHER, select Journal Entry.
  3. Select your accounts receivable and liability account.
  4. On the DEBITS column, enter the amount (2000$) for your liability account.
  5. Under CREDITS, enter the amount (200$) for your receivable account.
  6. Select your customer's name under the NAME column.
  7. Click Save and close.

Here's an article you can read to learn more about creating a journal entry: Create a journal entry in QuickBooks Online.

 

I've got you this helpful article in case you need some ideas about managing your account: Reports and Accounting.

 

Fill me in if you have further questions. I'm always around if you need any help.

View solution in original post

4 Comments 4
Emily M
QuickBooks Team

How can I show an invoice is paid if the payment was reduction of debt in lieu of cash? I sold $2000 of goods for which my customer agreed to cancel $2000 that I owed him

Hello, @jhines.

 

I’m here to guide you on how to set up a receive payment from a note payable. You’ll need to set up a loan in QuickBooks. This will set up a liability account to record the payment.

 

For step by step instructions, please view this article below:

 

Set up a load in QuickBooks online

 

Don’t hesitate to reach back out to me, should you have other questions. Bye for now.

jhines
Level 2

How can I show an invoice is paid if the payment was reduction of debt in lieu of cash? I sold $2000 of goods for which my customer agreed to cancel $2000 that I owed him

Thanks. Much appreciated.

 

I have the loan set up as a Note Payable. It's been on the books for about three years under that long-term liability account heading.

 

I also have an outstanding invoice on the books for the merchandise that the customer bought from me.

 

So right now I have in Quickbooks:

 

The invoice for $2000 (plus sales tax) that he bought from me

The Note Payable of $5000 that I owe him

 

What we agreed is that instead of paying cash (or credit card) for the merchandise, the customer's payment will be made in the form of a reduction in my Note Payable to him. Also, I will charge his credit card for the sales tax. This sales tax part I have figured out.

 

What I cannot figure out is how to show that his invoice is paid, and that his Note Payable principal balance is now $5000-$2000 = $3000.

 

I need a way to show that the customer has "paid" me for his purchase by reducing the Note Payable.

 

From your link, I can see how to record a payment on the Note Payable if the payment is a check, or cash or electronic transfer. But I cannot see how to record a payment on the Note Payable by linking that to the invoice for the merchandise the customer bought. 

 

I forgot to mention, our books are all done on a cash basis.

 

Any help on how to do this would be greatly appreciated.

JonpriL
Moderator

How can I show an invoice is paid if the payment was reduction of debt in lieu of cash? I sold $2000 of goods for which my customer agreed to cancel $2000 that I owed him

Hello @jhines

 

You can create a journal entry to transfer the invoice payments to your loan payable.

  1. Go to the Plus icon.
  2. Under OTHER, select Journal Entry.
  3. Select your accounts receivable and liability account.
  4. On the DEBITS column, enter the amount (2000$) for your liability account.
  5. Under CREDITS, enter the amount (200$) for your receivable account.
  6. Select your customer's name under the NAME column.
  7. Click Save and close.

Here's an article you can read to learn more about creating a journal entry: Create a journal entry in QuickBooks Online.

 

I've got you this helpful article in case you need some ideas about managing your account: Reports and Accounting.

 

Fill me in if you have further questions. I'm always around if you need any help.

View solution in original post

jhines
Level 2

How can I show an invoice is paid if the payment was reduction of debt in lieu of cash? I sold $2000 of goods for which my customer agreed to cancel $2000 that I owed him

This is great! Thanks so much!!

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