I have a customer who is also a supplier. They paid the net of amounts owed by them less amounts owed to them. How do I pay off A/R and A/P with the amount received?

@christinebetts 

IMO, the best way to handle these transactions is to receive the payment on the customer invoice and deposit it into a bank clearing account.  If you don't have one, set up a bank account called "Clearing Account". Then, create a journal entry to move the "payment" received to an A/P credit that can be applied to a vendor bill.   To do this, create a journal entry - debit A/P and credit the bank clearing account. Make sure you include the vendor's name on the A/P line of the journal entry. This will transfer the balance in the clearing account to a vendor credit that can be applied to their outstanding A/P.  Then, apply the credit to the vendor bill and what's left should match what the vendor paid you.

I'll help you handle this transaction, christinebetts.

We can follow Rainflurry's steps. Beforehand, add your customer as a vendor. Since you can’t have the same name in both lists, make one of the names slightly different.

 Then, let's create a Clearing Account to move money from one account to another. Here's how:

1. Go to the Gear icon and then select Chart of accounts.
2. Select New.
3. Under the Account Type drop-down menu, select Bank.
4. Choose Cash on hand as a Detail Type.
5. Enter the account name. (ex. Barter Bank Account)
6. Click Save and Close.

Once done, follow these steps to track the transaction:

1. Create a journal entry.
2. Add the AR or AP from which you are moving money.
3. Select the Clearing account.
4. Save the journal entry.
5. Enter a second journal entry.
6. Choose the Clearing Account.
7. Add the AR or AP account to which you're moving money.
8. In either Pay Bills or Receive Payments, link the journal entries together.

Aside from using a Clearing Account, you can also record it as a barter transaction.

Additionally, I've added an article that'll help you review your QuickBooks accounts to match them to your bank and credit card statements: Reconcile Workflow.

Please keep us posted if you need additional assistance with the tracking process. We want to make sure your record is accurate.