We have a vendor who has sent us to collections. We have agreed to pay the amount and need to pay the collection agency.
1) What gl account do we use to set up the collection agency in our vendor list
2) Do we just do a credit memo in the vendors account (the vendor who sent us to collections) to reduce the amount as we make payments to the collection agency?
Make a Vendor Credit to the vendor you owed, all this time. On the Expenses tab, put that amount to an Other Liability account. Apply this in Pay Bills. Now this no longer is AP; it is a different liability. Now you issue checks to the Collection Agent and post the "expense" account as that Liability account. You have two different types of liability here; move it from AP by offsetting it to "real" other liability.
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