Sep 9th 2009
By Irene Bushnell and Kevin Cumley
Which tricky transactions, you ask? You know, those once-in-a-while transactions that always give you a headache (and you can never figure out or remember how to do), such as recording bad debt, trading receivables with payables, and recording customer down payments. Let’s look at a few of them and discuss the best way to record those transactions in QuickBooks.
Recording Bad Debt
Unfortunately, there are times when someone doesn’t pay an invoice and we need to write off the transaction as bad debt. No, please don’t take the easy way out and just void the invoice! It’s important for organizations to track bad debt to help manage the finances of the business. The method described below is particularly useful because it creates a document (a credit memo) that accurately describes the written-off receivable.
- Set up an Item called Bad Debt Write-Off. The item can be an Other Charge type and be linked to the Bad Debt Expense account in the chart of accounts.
- Create a credit memo for the receivable being written off. In the credit memo, use the item created above and write notes for yourself about the debt being written off. Be sure to include all the details you may need later on. This leaves a well-documented paper trail for future reference.
- Use the Receive Payments window to apply the credit to the outstanding invoice.
Trading or Bartering Using Accounts Receivable and Accounts Payable
Have you ever had a customer who wants to trade what is owed to your company for a service or item you purchased from him/her? If you record such transactions with the method described below, you have a more accurate picture of total income and expenses, even though the net effect on your income statement is zero.
For example, instead of paying a bill to an advertising company, you provide a service to the advertising agency. Enter a bill for the service performed by the advertising agency. Enter an invoice for the services you performed. Receive payment for the amount of income that would have been received for consulting and pay bills for the amount of money that would have been paid for advertising. Payment is processed into and out of the Clearing/Trade account (no actual cash or money is exchanged).
- Set up a new account (type = bank account) in your chart of accounts called Clearing/Trade. The balance in this account should always be zero when you’re finished with a trading sequence of transactions.
- Offset the payable. Write off a bill in trade for income you would have received.
- Enter an Invoice (if one has not been entered) representing the income you would have received had you not traded for the payable.
- In the Receive Payments window, receive payment for the accounts receivable amount.
- In the Make Deposits window, record the deposit into the Clearing/Trade bank account.
- Offset the receivable. Write off a receivable in trade for a bill you would have paid.
- Enter a Bill (if one has not been entered) representing the expense you would have incurred had you not traded for the receivable.
- Pay the Bill using the Pay Bills window and select the Clearing/Trade account as the payment account.
Recording Customer Down Payments
When a customer gives you a down payment, you need to show a liability on your balance sheet until the work is performed or product delivered. The below method will allow you to process this type of transaction, as well as track and report down payments for each customer individually.
- Create a liability account for tracking down payments.
- Create an item called Down Payments that links to the liability account.
- Create an invoice for the down payment using the item set up above and receive payment against the invoice.
- Apply the down payment to the final invoice using the item above as a negative on the final invoice.
- Print the down payment invoice for the customer if a receipt is requested.
- Create a transaction report from the balance sheet and select to “total by” customer. This will allow you to view the deposits and use of deposits for each customer individually. Don’t forget to memorize the report once you get it customized.
Tip! To see the journal entry created by QuickBooks for a transaction, click the journal button or press Ctrl-Y on your keyboard.
About the author:
Irene Bushnell, a Certified QuickBooks ProAdvisor, is a shareholder with Anderson Zurmuehlen in Helena, MT. Kevin Cumley is president of Forepoint LLC, based in the company’s Helena, MT office. The new QuickBooks Conference Kit assists CPA Firms, Intuit Solution Providers, ProAdvisors and others interested in hosting their own QuickBooks Users Conference. It is a joint project between Forepoint LLC and Anderson Zurmuehlen. For more information please visit www.QBConferenceKit.com or call 406-495-1000.