Hello, @Dixon FDS.

It's great to see that you're actively working to address the situation involving vendor A's outstanding AR invoice and AP invoice. You're definitely on the right track.

After creating the journal entry to transfer the AR and AP balances, you need to follow up with a couple of specific steps to ensure the offset is properly reflected and the transactions are accurately recorded. First, you need to set up a temporary bank account called "Clearing Account" to hold the offsetting amount. 

Then, follow these steps:

Apply the Credit to the Invoice: 

1. Click + New and then Receive payment.
2. Select your customer who's also a vendor.
3. In the Deposit to field, select the clearing account.
4. Keep the Amount Received field as zero.
5. Select the invoice.
6. Under the Outstanding Transaction section, select the checkbox for the journal entry. If you have automation to apply bill payments turned on, this step is done for you.
   
7. Select Save and close.

Pay the Bill: 

1. Click +New.
2. Select Pay Bills.
3. In the Payment Account field, select the clearing account.
4. Select a bill for your vendor from the list. You'll see the available credit with this vendor in the Credit Applied field.
   
5. Select Save and close.

By following these steps, you'll successfully offset the outstanding AR invoice against the AP invoice and then pay the net AP balance due to Vendor A. 

Furthermore, I recommend performing account reconciliations. This practice helps identify any disparities between your QuickBooks records and your bank statements. It serves as a valuable tool for detecting errors like duplicate or missing transactions, as well as incorrect amounts.

Feel free to reach out if you need any additional assistance or guidance. Best of luck with your financial transactions. I'm here to help if you need anything else.

Thank you LieraMarie.

Under Receive Payment, what should I choose/fill in under "Payment Method", "Deposit To" & "Amount Received" fields? 

Under Pay the Bills, what would be the Payment account as there is no genuine payment from the Bank? I want to know the things that needs to be entered here

Appreciate your help. Thanks.

Hi Nicole,

Thanks for your answer which looks really helpful. It could also help me clear my questions if your reply could be specific to my questions under AR/AP offset case? There is actually no actual receipt and payment (i.e. physical cash movement via bank) in the AR/AP offset.  I do not think the AR/AP offset would need to flow through the bank account. Thank you.  

@Dixon FDS 

A much easier way to handle applying A/R to A/P or vice versa is to create a bank account called 'Clearing Account'.  This is just a temporary account used to hold the offsetting amount. 

If you're applying A/P to A/R, pay the bill using the Clearing Account.  Then, receive payment on the invoice for the same amount and deposit it into the Clearing Account.  That will zero out the Clearing Account leaving the balance due on the invoice.

If you're applying A/R to A/P, receive payment on the invoice and deposit it into the Clearing Account.  Then, pay the bill for the same amount using the Clearing Account.  That will zero out the Clearing Account leaving the balance due on the bill.

Hi Rainflurry,

Your reply seems simple by creating a Bank Clearing Account and straightforward and we do not need to put through any journal entries.  There is a QuckBook Checking Account in the Chart of Account. Can I use this bank account as a clearing account for the AR receipt and AP payment offset. Thanks.

@Dixon FDS 

You can, but it will post a deposit and payment to the checking account that, whoever reconciles that account, will need to be aware of so they can clear them the next time the bank account is reconciled.  Setting up and using a Clearing Account is preferable.     

Hi Rainflurry,

Thanks for the reply.  Sorry for not responding to you sooner.

How to set up a Clearing Account?  Should the Account Type be "Bank"?  I did set up a Clearing Account under Account Type "Other Current Account" but this Clearing Account do not appear when I try to pay the bill.  

Great and thanks.  The issue is solved now.  It is better to use the Bank Clearing Method as (i) the relevant AR & AP invoices could be properly cleared in the system and (ii) no journal entries are required.