Especially in small business, you may find that one of your vendors is also interested in becoming a customer. Then, inevitably, tells you to deduct what he owes you on the Invoice from what you owe him on the Bill. Now what?!
First, remember that in QuickBooks, you can’t have the same name on two different lists. To handle this, simply add a -C to the customer name and/or a –V to the end of the vendor name. So, ABC the vendor becomes ABC–V and the customer is ABC–C. Easy enough.
Let’s say your company owes the vendor ABC-V $150. Enter the Bill as usual.
And, as customer ABC-C, they owe the company $50. Enter the Invoice as usual.
Basic accounting states that a payable (the bill) is normally a credit balance and a receivable (the invoice/sales receipt) is normally a debit balance. (And no, there isn’t a quiz at the end of this.)
1. Create an expense account, if you haven’t already, and call it something like “clearing.”
2. Create General Journal entry #1
• Credit Accounts Receivable $50 and select customer ABC-C
• Debit the Clearing expense account $50
3. Create General Journal entry #2
• Debit Accounts Payable $50 and select vendor ABC-V
• Credit the Clearing expense account $50.
This dose require two separate Journal Entries as QuickBooks will not let you create a J/E with both A/R and A/P on it.
4. Bring up the Invoice you created for ABC-C and use the ‘Apply Credits’. Select the $50 credit and save the now paid invoice.
5. When it’s time to pay the Bill you entered earlier, go into Pay Bills. You will have an option to ‘Set Credits’ in the payment window and will see the $50 credit available. Select the credit and your Amount to Pay will now be $100.