8. Managing Vendors

In Chapter 7, “Setting Up Vendors,” you learned the particulars for adding, editing, and creating transactions for vendors. In this chapter, you learn how to best manage the vendor details in your QuickBooks file. Additionally, you learn how to handle unique vendor transactions.

Accounts Payable Reporting

Accounts payable mistakes can be one of the primary causes of misstated company financials. Knowing which reports are best to review will make you much more efficient at keeping your accounts payable “clean,” meaning with correct and up-to-date data. What makes troubleshooting data errors most difficult is often not knowing exactly what you should be looking for. The next section addresses this problem by explaining some of the more common reports you use to identify whether your accounts payable information is correct.

Reconciling Balance Sheet Accounts Payable Balance to A/P Aging Summary Report Total

With QuickBooks, you don’t have to worry that the Balance Sheet Accounts Payable balance does not match the A/P Aging Summary report total because any transaction posting to the Accounts Payable account must have a vendor assigned. When providing year-end documentation to your accountant, be sure to include the A/P Aging Summary or Detail report and compare the total amount from these reports to the Balance Sheet balance for Accounts Payable.

To compare the Balance Sheet Standard report balance for Accounts Payable with the A/P Aging Summary report total, follow these steps:

1. From the menu bar, select Reports, Company & Financial, Balance Sheet Standard. On the Balance Sheet report that opens, select the As of Date you want to compare to. To accurately compare the Balance Sheet report Accounts Payable balance and the A/P Aging Summary report total, you must create your Balance Sheet on the accrual basis. If your reporting preference default is for cash basis, you can temporarily change the reporting basis by clicking the Customize Report button on the active report window and selecting Accrual as the report basis. Click OK to return to the report.

2. Note the balance of your Accounts Payable account(s) on the Balance Sheet (see Figure 8.1).

Figure 8.1. Use an accrual basis Balance Sheet report when reconciling your Accounts Payable Aging report.

3. From the menu bar, select Reports, Vendors & Payables, A/P Aging Summary (see Figure 8.2). Make sure the date is the same as the date you selected in step 1.

Figure 8.2. Your A/P Aging Summary report should always reconcile with the Accounts Payable total on an accrual basis Balance Sheet report.

Your Accounts Payable balance on the Balance Sheet Standard report should match the total on the A/P Aging Summary report. If it does not, it might be a data integrity issue. If the two balances do not match, first make sure your Balance Sheet Standard report is created in the accrual basis. Then verify your data by selecting File, Utilities, Verify Data from the menu bar. Chapter 17, “Managing Your QuickBooks Database,” discusses this in more detail.

Reviewing the Unpaid Bills Detail Report

If you need more detail than the A/P Aging Summary report offers, consider the Unpaid Bills Details report. This report is helpful because it displays individual vendor bill and credit memo lines for each open vendor transaction instead of summarizing amounts by aging interval.

By default, this report is perpetual, which means that even if you create it using a date in the past, QuickBooks shows those open vendor bills, or unapplied credit memos, as of today’s computer system date, including all payments recorded before and after the report date. You can override this default and then properly reconcile the Unpaid Bills Detail report to your Balance Sheet and your A/P Aging Summary report for a date prior to today’s date. To do so, follow these steps:

1. From the menu bar, select Reports, Vendors & Payables, Unpaid Bills Detail. As mentioned previously, this report includes all payments made before and after the report date you have chosen.

2. If you are creating this report for a date other than today, you will likely want to have the report match your Balance Sheet totals as of that same date. To do so, click Customize Report. The Modify Report dialog box opens, with the Display tab selected.

3. Click the Advanced button to open the Advanced Options dialog box.

4. Under Open Balance/Aging, select the Report Date option, as in Figure 8.3, and click OK to close the Advanced Options dialog box.

Figure 8.3. Modify the Unpaid Bills Detail report so that it agrees with the Balance Sheet for a date in the past.

5. Click OK to return to the report.

Modifying this report enables you to see each open vendor bill or unapplied credit detail as of some date in the past. This report becomes useful for reconciling your Accounts Payable unpaid bills or open credit detail to your Balance Sheet Accounts Payable total. You might want to send a copy of this modified report to your accountant after verifying that it agrees with the Balance Sheet for the same date.

If an amount is listed on this report, it is presumed that you owe the money; in the event of a credit, your vendor owes you.

Reviewing Aged Open Item Receipts

When goods are purchased for inventory, non-inventory, or other item types, vendors often ship the product with a packing slip and then send the final vendor bill later. One reason for doing this is that receiving departments in a warehouse should not necessarily know the value of the goods being delivered. Another reason is that the vendor might need to add freight and handling to the final bill before sending it to your company.

The QuickBooks Create Item Receipts transaction records the receipt of the stock into your place of business, increases the quantity on hand for this item (if it is an inventory item), and increases your accounts payable due to that vendor.

However, because you have not yet received the final bill from the vendor, QuickBooks does not include these item receipts in the Pay Bills dialog box. This is because QuickBooks recognizes an item receipt transaction as not yet having received the final bill to be paid.

An error in your accounting can result if you entered a bill, ignored the warning message that outstanding item receipts existed for that vendor, and created another bill. Or perhaps you used the Write Checks transaction to pay for the same charge as recorded on the original item receipt. Both of these types of mistakes overstate your expenses or inventory value.

First, to see if this issue is a problem for your data file, from the menu bar, select Reports, Vendors & Payables, Unpaid Bills Detail. On the report, do you have line items with a transaction type of Item Receipt? (See Figure 8.4.) If you do, these are from receiving inventory, non-inventory, or other types of items without receiving (or recording) the final vendor bill.

Figure 8.4. Aged item receipts are acceptable only when you have not yet received the vendor’s final bill.

After reviewing your Unpaid Bills Detail report, if you find outdated item receipts that you do not owe the vendor, determine whether they have been paid by requesting an open payables statement from your vendor. To see if the bill was paid with a Write Checks transaction instead of the proper Pay Bills transaction, follow these steps:

1. On the Home page, click the Vendors button.

2. Click the Vendor name on the left. If you don’t initially see the vendor you want, click any vendor on the list, and then type the first letter of the name to advance to the first list entry with that letter.

3. On the Transaction tab, on the right, click the Show drop-down list to select the Checks transaction type (see Figure 8.5).

Figure 8.5. Use the Vendor Center to easily review checks written to a vendor, as opposed to bill payment checks.

You can optionally print the vendor transaction list via the Print drop-down list at the top of the Vendor Center dialog box.

In Figure 8.4, shown previously, Perry Windows has an open item receipt dated 06/05/17. To see whether this vendor was paid by check, follow the previous steps to see any Write Checks (not Pay Bills) transaction type that was written to the vendor.

→ For more information, see “Correcting Accounts Payable Errors,” p. xxx.

Reviewing Item Setup

Items play an important part in the accounts payable process if you use purchase orders, item receipts, or the Items tab on a vendor bill, credit, credit card charge, credit card credit, or check.

Figure 7.10 (in the previous chapter) pictured a service type item with a checkmark in the box titled This Service Is Used. Be sure to select this option if you buy and sell the same item. If you do not choose this option and you use the same item on a purchase and a sales transaction, QuickBooks records both the revenue and the expense to the single account selected on the New Item dialog box or Edit Item dialog box. In this case, total revenues and total expenses will both be understated because QuickBooks nets the two amounts together into a single general ledger account.

It is acceptable to create an item with only one account if you know that you will never buy and sell the same item. However, I usually recommend setting up each item as two-sided, with the item record requiring both an expense and an income account.

Chapter 4, “Understanding QuickBooks Lists,” discusses properly setting up lists in more detail. This section focuses on how you can determine whether your items are the cause of errors on your financials for a company data file with transactions. If your data file does not yet have transactions in it, use this report to check your item setup.

Imagine that an item was created with only an income account assigned. The item was used on a vendor bill, and the user has to decide whether to ignore the warning shown in Figure 8.6.

Figure 8.6. You receive this warning on an expense transaction when using an item that has only an income account assigned.

To see whether this type of error affects your data, create the following report:

1. From the menu bar, select Reports, Company & Financial, Profit & Loss Standard.

2. Double-click the Total Income account (see Figure 8.7). QuickBooks creates a Transaction Detail by Account report, as in Figure 8.8.

Figure 8.7. Double-click the Total Income amount to create a Transaction Detail by Account report.

Figure 8.8. A Bill transaction type should not post to an income account unless the item does not have an expense account assigned.

3. At the top right of the resulting Transaction Detail by Account report, select Type from the Sort By drop-down list. QuickBooks groups all transactions by type within each income account or subaccount. Notice in Figure 8.8 that the Labor Income account has a vendor bill transaction posting to an income account.

Accounts Payable Balance on Cash Basis Balance Sheet

The nature of accounts payable suggests that when you review your financials in cash basis, you do not see an Accounts Payable balance. See Table 8.1 for a listing of the transactions you can use in accounts payable and the effect the transaction has on both accrual and cash basis reporting.

Table 8.1. Accounts Payable on Accrual or Cash Basis Balance Sheet

What can cause an Accounts Payable balance to appear on a cash basis Balance Sheet report? Any of the following:

• A/P transactions that have expenses or items posting to other balance sheet accounts.

• Inventory items on an invoice or credit memo (typically, inventory management should be done using accrual basis reporting).

• Transfers between balance sheet accounts.

• Unapplied accounts payable vendor payments.

• Payments applied to future-dated vendor bills.

• Preferences that contradict each other. (This can happen if you select cash basis on your summary reports and accrual basis as your sales tax preference.)

• Data corruption. To confirm (and hopefully resolve) this problem, from the menu bar, select File, Utilities, Verify Data. Chapter 17 has more details.

What can you do if you do have an Accounts Payable balance on your cash basis Balance Sheet? The following steps help you locate the transactions making up this balance:

1. From the menu bar, select Reports, Company & Financial, Balance Sheet Standard.

2. Click the Customize Report button to open the Modify Report dialog box with the Display tab selected.

3. Select Cash for the report basis.

4. Click OK.

5. Double-click the Accounts Payable amount in question (see Figure 8.9). The Transactions by Account report is created.

Figure 8.9. Cash basis Balance Sheet report with an Accounts Payable balance.

6. Click the Customize Report button to open the Modify Report dialog box with the Display tab selected.

7. For the Report Date Range, remove the From date and leave the To date.

8. Click the Advanced button and, from the Open Balance/Aging box, select Report Date, shown in Figure 8.10. Click OK to close the Advanced Options dialog box.

Figure 8.10. Use the Advanced button on the Modify Report dialog box to filter a report for transaction status as of a specific date in the past.

9. Click the Filters tab.

10. In the Choose Filter box, scroll down to select Paid Status.

11. Select Open for Paid Status.

12. Click OK to return to the report and look for transactions that fall into any of the categories described earlier. The Transaction Detail report in Figure 8.11 shows several inventory transactions and a prepaid insurance transaction. All these transactions post to other balance sheet accounts, one of the common causes of having an Accounts Payable balance on a cash basis Balance Sheet report.

Figure 8.11. Filter for transactions that make up the Accounts Payable amount on a cash basis prepared Balance Sheet report.

Tracking and Reporting Vendor 1099-MISC Payments

If your company pays individuals and certain types of businesses, you might need to file a Form 1099-MISC at the end of each calendar year. Currently, only vendors paid $600 or more in a given year must be reported to the IRS.

When submitting 1099 forms to the IRS, you must also include Form 1096. This transmittal document summarizes the individual 1099 forms. QuickBooks prints both the 1096 summary and individual 1099 forms, using preprinted tax forms available through Intuit or most office supply stores. Intuit also offers the option to use its E-File Service for filing your 1099 and 1096 tax forms.

Before you begin using the QuickBooks 1099 Wizard, review your vendor settings using the following reports. To access these, from the menu bar, select Vendors, Print/E-file 1099s.

• Review 1099 Vendors—Lists each vendor’s Tax ID, Address, and other useful information. Sort by Eligible for 1099 at the top of the report to help verify that you have all the vendors selected for whom you need to issue a Form 1099-MISC.

• 1099 Summary Report—Lists Box 7: Nonemployee Compensation details by vendor and other 1099 applicable reporting boxes.

• 1099 Detail Report—Lists individual transactions used to calculate the amount reported for the vendor’s Form 1099-MISC earnings.

Properly setting up your 1099 tax form preferences in QuickBooks ensures compliance with federal tax reporting guidelines. If you have specific questions about what type of vendor should receive this document, refer to the www.irs.gov website or contact your company’s accountant or tax advisor. Next, let’s get your file ready to track and report your Form 1099-MISC payments to vendors using the six steps in the QuickBooks 1099 Wizard.

Step 1—Select Your 1099 Vendors

Not all vendors are required to receive a Form 1099-MISC at the end of the year. Make sure you have reviewed the reporting requirements on the IRS website or have asked for advice from your company’s accountant or tax advisor.

To select your 1099 vendors, follow these steps:

1. Log in to your file as the Admin or External Accountant user.

2. From the menu bar, select Edit, Preferences to open the Preferences dialog box, as Figure 7.2 showed in Chapter 7.

3. Select the Tax:1099—Company Preferences tab. Select the Yes option for Do You File 1099-MISC Forms?

4. Next to If You’re Ready to Prepare Your 1099s, Including Mapping Accounts, click the Click Here link.

5. Click Yes to the Save Changes message, if displayed. QuickBooks opens the 1099 Wizard, in Figure 8.12.

Figure 8.12. In a few simple steps, you can use the 1099 Wizard to review eligible payments and generate 1099 forms.

6. Review the steps and click Get Started.

7. Place a checkmark in front of the vendors for which you want to track Form 1099-MISC earnings. (Optional) Click the Select All button. See Figure 8.13.

Figure 8.13. Select the vendors that will receive a Form 1099-MISC.

8. Click Save & Close if you are not ready to complete the remaining steps in the 1099 Wizard, or click Continue to advance to the next step.

Select all the vendors that should get the required tax form. QuickBooks automatically excludes any vendors whose payments fall below the IRS threshold (currently $600). Do not worry here if you are uncertain which vendors to select. You can always come back and make changes.

Step 2—Verify Vendor Information

This step in the 1099-MISC Income Setup Wizard displays each vendor you have assigned that needs the 1099-MISC income tax form at year end. If you do not see a vendor that should be on this list, click Back and place a checkmark next to vendors who qualify for the form.

You can also update the Tax Settings tab within the vendor record for any vendors that should receive a 1099. This includes recording the vendor’s Tax ID number, as well as clicking the “Vendor Eligible for 1099” checkbox on the Tax Settings tab of a New or Edit Vendor record. You can request the vendor’s address and tax identification number using IRS form W-9, “Request for Taxpayer Identification Number and Certification.” You can download this form from the www.irs.gov website.

If you omitted these steps when you initially created your vendor record, you can add this information at any time during the year, and QuickBooks will include the vendor payments in your 1099 reporting.

To verify vendor information, follow these steps:

1. If you selected Continue after step 7 (select your 1099 vendors) in the previous section, you should now verify your 1099 vendors’ information.

2. The list shows only the vendors you selected. Confirm that the Tax ID, Company Name, Address, and other fields are all completed correctly for each vendor. See Figure 8.14.

Figure 8.14. Changes made in the 1099 Wizard automatically update the corresponding vendor record in QuickBooks.

3. If information is missing or inaccurate, click in the field and enter the appropriate information.

4. Click Save & Close if you are not ready to complete the remaining steps in the 1099 Wizard, or click Continue to advance to the next step.

Step 3—Map Your Accounts

QuickBooks provides the option of including or excluding specific general ledger accounts from being used when reporting your vendor’s payments. For example, you might pay your vendor for services and record it to a specific Subcontractors expense account. You might also reimburse that same vendor for material purchases and record that portion of the expense to a different expense account.

To map your accounts, follow these steps:

1. After verifying your 1099 vendors’ information, click Continue.

2. For the vendors you have selected, the 1099 Wizard displays the accounts that were assigned on the vendor payments. For each account displayed, you can choose to omit these payments from Form 1099-MISC income reporting or select from several 1099 box reporting options. See Figure 8.15.

Figure 8.15. Selectively choose which accounts are reported or omitted from your 1099 reporting.

3. (Optional) Click the Show 1099 Accounts drop-down list, and select Show All Accounts if you want to omit or map your 1099 reporting for all your accounts on your chart of accounts.

4. (Optional) Select the Report All Payments in Box 7 checkbox. When you do so, all the displayed accounts are assigned to Box 7:Nonemployee Compensation.

5. If you see the warning message “Your Settings Do Not Match the Current IRS Thresholds,” click the Show IRS 1099-MISC Filing Thresholds link.

6. Read the information displayed in the 1099-MISC IRS Thresholds dialog box. Click the Reset to IRS Thresholds button. QuickBooks updates the thresholds with current tax information.

7. Click Save & Close to return to the 1099 Wizard.

8. Click Save & Close if you are not going to complete the remaining steps in the 1099 Wizard, or click Continue to advance to the next step.

Step 4—Review Vendor Payments

Do you pay your vendor bills by credit card? Beginning with the 2011 reporting tax year, the IRS established new rules to exclude from Form 1099-MISC any payments you made by credit card, debit card, gift card, or third-party payment network such as PayPal. (The IRS now requires that card issuers and third-party payment networks report these transactions on Form 1099-K.) You should review both included and excluded payments on the Review Payments for Exclusions screen in the 1099 Wizard, in Figure 8.16.

Figure 8.16. The 1099 Wizard enables you to verify whether payments should be included or excluded in the year’s 1099 reporting.

Payments to vendors that are made by credit card should always be recorded in QuickBooks via the Enter Credit Card Charges form. If instead you use the Pay Bills or Write Checks transaction forms, you need to take special guidelines into account. To record a vendor payment made with a credit card, debit card, or gift card, or using a third-party payment network such as PayPal but recorded in QuickBooks with a Bill Payment Check or Write Check, you should note the payment method in the No. field of a Bill Payment Check or Write Checks dialog box. QuickBooks recognizes, and automatically excludes from Form 1099-MISC, these payments if the following notations in the check number field (limited to eight characters) are used:

• Debit

• DBT card

• Visa

• MCard

• Diners

• Debitcar

• DCard

• Masterc

• Chase

• Paypal

• DBT

• Debit cd

• MC

• Discover

To view the transactions included in your 1099 reporting, follow these steps:

1. Click View Included Payments. QuickBooks creates a report titled “Check Payments Included on Forms 1099-MISC” (see Figure 8.17).

Figure 8.17. Review checks recorded as payments to vendors that might have been paid by debit card.

2. If any of these payments were made by credit card, debit card, gift card, or third-party payment network such as PayPal, you need to edit the check number, which displays in the Num column on this report.

3. Double-click to open a single transaction that was paid by debit card. The associated check displays. Modify the information in the No. field using one of the accepted notations listed previously.

4. Click Save & Close to save your changes. QuickBooks no longer includes this payment in your 1099-MISC Income reporting.

5. Click the View Excluded Payments button. QuickBooks creates a report titled Check Payments Excluded from Forms 1099-MISC. Verify that the transactions listed on this report qualify to be excluded from 1099-MISC income reporting.

6. Click the X in the top-right corner to close the report(s).

7. Click Save & Close if you are not going to complete the remaining steps in the 1099 Wizard, or click Continue to advance to the next step.

Step 5—Confirm 1099-MISC Entries

The 1099 Wizard displays a list of the Vendors that will receive a Form 1099-MISC (see Figure 8.18).

Figure 8.18. Preview vendor payments to include or not include in your Form 1099-MISC income reporting.

To confirm 1099-MISC entries, follow these steps:

1. Click the Summary Report link to see a summary for all vendors included in your Form 1099-MISC income reporting. Modify the dates and filters as needed.

2. In the top right, click the X to close the 1099 Summary Report.

3. Click the Detail Report to see a list of all transactions grouped by vendor. Modify the dates and filters as needed.

4. In the top right, click the X to close the 1099 Detail Report.

5. Click Save & Close if you are not going to complete the remaining step in the 1099 Wizard, or click Continue to advance to the next step.

Step 6—Choose a Filing Method

The QuickBooks 1099 Wizard provides information to help you choose a filing method, either printing or electronically filing the forms (see Figure 8.19).

Figure 8.19. The 1099 Wizard makes it easy to print 1099 forms or file electronically.

To print your 1099-MISC Income forms, follow these steps:

1. Click the Order Forms link to order your tax forms from Intuit. You can also purchase tax forms from your local office supply store.

2. Click Print 1099s to print the documents on the preprinted forms you have purchased.

3. QuickBooks displays the 1099-MISC and 1096 Forms dialog box. Select the year you are printing your forms for. Typically, you select Last Calendar Year.

4. The Select 1099s to Print dialog box displays, with each vendor selected. (Optional) Click Select All or Select None.

5. QuickBooks displays the number of vendors selected and the total dollar amount for the selected vendors.

6. If you will be e-Filing your 1099s, skip to the instructions that follow step 11. If you are printing, continue with step 7.

7. Click Print 1099. The Print 1099s settings display. Place the tax forms in your printer and select Print. You need to print on preprinted forms; unlike W-2s, the IRS does not accept 1099 forms on plain paper.

8. View the documents that printed. When you have finished printing 1099s, click Print 1096 and insert the preprinted form into your printer.

9. Enter the Contact Name in the 1096 Information dialog box. If circumstances warrant, select This Is My Final Return.

10. Choose your printer and click Print. QuickBooks returns to Select 1099s to Print.

11. When printing finishes, click the X in the top-right corner to close the Select 1099s to Print dialog box.

If you will be e-Filing, click the Go to Intuit 1099 E-File Service. Follow the instructions for filing. You will complete three steps:

1. Sign up for the Service—Use your Intuit Account username and password.

2. Set up Intuit Sync Manager—Enable QuickBooks to send your information to the Intuit E-File 1099 Service.

3. Purchase, Print, and E-File—Print and E-File your returns with a click of a button.

The information window provides a toll-free number to call if you have any questions. 1099 forms for a given tax year cannot be filed until January of the following year.

You have successfully completed the steps to properly track and report your vendors’ Form 1099-MISC income payments.

Correcting Accounts Payable Errors

Chapter 7 provided a recommended workflow and preference settings that help you avoid making mistakes with your accounts payable transactions. This chapter provides specific details about methods you can use to correct existing accounts payable errors.

The purpose of this book is not to give business-specific accounting or tax advice, but rather to introduce you to ways you can fix specific mistakes you have found.

When Vendor Bills Are Paid Without Using the Proper Process

Earlier in this chapter, in the section “Reviewing the Unpaid Bills Detail Report,” you learned a way to reconcile your A/P Aging Summary report total to your Balance Sheet Accounts Payable total (refer to Figures 8.1 and 8.2). As important as this task is, it is also necessary for you to review those items listed as unpaid to your vendor. If you notice an open vendor bill that you know is no longer due, it might be because you paid the vendor with a Write Checks transaction instead of the proper Pay Bills transaction type.

You should experience fewer of these types of mistakes in recent years because QuickBooks directs you to the Pay Bills dialog box, in Figure 8.20, when you attempt to write a check to a vendor with open bills.

Figure 8.20. You see this warning if you attempt to create a Write Check transaction when paying a vendor with open bills.

If you choose to modify the original vendor check, carefully consider the accounting effect this type of correction will have on your financials:

• Is the change a significant dollar amount? Both cash and accrual basis reports will be affected.

• Consider the date of the check and the date of the bill—are they in different tax years?

• Will the correction affect a year in which the data has already been used to prepare a tax return?

If you answered yes to any of these questions, be sure to discuss with your accountant the impact this change could have on your financials.

You can modify this check, making it become a vendor credit. In other words, it will decrease (debit) Accounts Payable and maintain the original decrease (credit) to your cash account. To do so, follow these steps:

1. Locate the Write Checks transaction used to pay the vendor. One easy way is to click the Vendors button on the Home page to open the Vendor Center. Choose your vendor from the list on the left, and select Checks from the Show drop-down list, as Figure 8.5 showed earlier.

2. Double-click the check to open the Write Checks transaction.

3. On the Expenses tab, in the account column, replace the currently listed account with the Accounts Payable account in Figure 8.21. This creates a decrease (debit) to the Accounts Payable account.

Figure 8.21. Using a check to record a vendor prepayment (debit to Accounts Payable).

4. In the drop-down list in the Customer:Job column, select the vendor name. If you previously listed a Customer:Job in this field, you are warned to choose a Vendor name instead. This assigns the accounts payable decrease to a specific vendor. You cannot save the transaction without assigning a vendor name.

5. Click Save & Close, and then click Yes to record your changes.

6. From the menu bar, select Vendors, Pay Bills, and use the arrow key on your keyboard to move up and down through the list of vendors in the Pay Bills dialog box. Optionally, you can select the vendor name from the Filter By drop-down list. Before placing a checkmark in the box next to the vendor’s specific invoice, QuickBooks shows the total number of credits and their total value in the Discount & Credit Information for Highlighted Bill section. (See Figure 7.21 in Chapter 7.)

7. When you have located the correct bill, place a checkmark in the box to the left of the Date Due column. When a bill is selected, QuickBooks automatically applies the available credits to the selected vendor invoice (if the preference was set). If not, and you want to modify the amount or which credits are selected, click the Set Credits button. The Discount and Credits dialog box displays (previously shown in Figure 7.22 in Chapter 7). Users can modify which credit is selected by changing the checkmark from one credit to another or by manually overriding the amount of the credit.

8. Click the Done button when the credit is assigned.

9. QuickBooks shows in the Pay Bills dialog box that the bill is paid by a credit (if the entire bill is being paid by the credit, QuickBooks does not create a check). Click Pay Selected Bills when you finish.

10. QuickBooks offers you Pay More Bills or Done choices. Click Done if you do not have any other transactions to correct using this method.

Misapplied Vendor Credit

Have you ever been given a credit from a vendor, only to find out later that your vendor applied the credit to a different open bill than you did in your accounting records?

QuickBooks makes it easy to reassign a vendor credit from one accounts payable bill to another bill. You temporarily assign the credit to another vendor and then reapply it to the correct vendor. To do so, follow these steps:

1. On the Home page, click the Vendors button to open the Vendor Center.

2. Select the vendor with the misapplied credit.

3. In the Show drop-down list, select Bills (this also lists vendor credits).

4. From the transactions listed, select the misapplied credit memo by double-clicking it. The Enter Bills dialog box, with the word Credit displayed, opens for the selected transaction.

5. On the vendor line of the credit, select a different vendor. (Remember who you assign it to.)

6. Click Save & Close. QuickBooks removes the credit transaction from the vendor bill it was previously associated with.

7. QuickBooks also warns that the transaction you edit will no longer be connected. Click Yes to continue (see Figure 8.22).

Figure 8.22. You see this warning when you unapply a previously applied vendor credit.

8. From the same Vendor Center, select the other vendor to which you assigned the credit. From the Show drop-down list, select Bills and double-click the credit you just assigned in step 5. The Enter Bills dialog box, with the word Credit displayed, opens for the selected transaction.

9. On the vendor line, select the original vendor.

10. Click Save & Close, and click Yes to making the change.

QuickBooks now shows the credit as unapplied to your original vendor, and you can follow the steps outlined previously for applying the credit to the correct open vendor bill.

Removing Aged Open Item Receipts or Vendor Bills

One of the most important tasks you can do to maintain correct accounting records is to remove old, aged item receipts or payables you do not owe or will not collect.

You have three options when you want to remove these aged (old) transactions:

• Create a credit memo and apply it.

• Void the item receipt or bill.

• Delete the item receipt or bill.

To create and apply a credit memo to a vendor bill, follow the same steps as listed in the earlier section titled “Applying Vendor Discounts or Credits.”

You must give special consideration to applying a credit memo to an open item receipt. First, convert the item receipt to a bill. To do so, follow these steps:

1. Locate the open item receipt using any of the methods suggested in Chapter 7.

2. When you select the open item receipt, QuickBooks opens the Create Item Receipts dialog box. Place a checkmark in the Bill Received box at the top right, as in Figure 8.23.

Figure 8.23. Converting an open Item Receipt to a bill is necessary before applying a vendor credit memo.

You can now apply your credit memo to the item receipt, which has been converted to a bill.

When considering whether to void it or delete it, I always prefer the void option because it leaves a record of the original transaction. Before voiding or deleting, you need to verify that the aged open item receipts or bills do not have any other transactions associated with them. To verify this, follow these steps:

1. Open the item receipt or bill using any one of the many methods in Chapter 7.

2. Open a previously recorded bill or create an Item Receipt transaction. The Transaction tab to the right includes information about linked transactions. QuickBooks displays in the Summary box information about when the transaction was created and edited (if applicable). The Related Transactions box provides links to the original transactions (if any).

If you had voided or deleted the vendor bill in Figure 8.24, you would have created an unapplied vendor payment (the Bill Pmt-Check listed in the Related Transactions section). In effect, you would have traded one correction for another problem. So be careful when making corrections to your accounts payable transactions.

Figure 8.24. Before voiding, deleting, or modifying a bill, click the Transaction tab to the right to see whether any transactions are associated with this bill.

Making General Journal Adjustments to Accounts Payable

All too often, I find that accounting professionals are quick to make adjustments to accounts payable using the Make General Journal Entries transaction, also referred to as a journal entry. The following are some of the issues surrounding the use of a journal entry for accounts payable adjustments:

• Only a single vendor or customer name can be in the Make General Journal Entries transaction, not both a vendor and a customer in the same transaction. This minimizes the usefulness of the transaction for large volume corrections.

• General journal entries do not include the option to assign an item, including service, non-inventory, inventory, and so on. The adjustment would affect the Profit & Loss reports but not specific QuickBooks reports that use item information, such as the Job Profitability reports or Inventory Valuation reports.

• You still need to go to the Pay Bills dialog box to assign the balance the general journal generates to the other related vendor transactions.

This type of error is more apparent when a multiple-line general journal entry form includes a Customer:Job Name on the first line. When preparing a Profit & Loss by Job report, QuickBooks would include all lines of the general journal entry as belonging to that job!

A quick fix is to add a blank line at the beginning of each general journal entry. Another recommendation is to create a fictitious bank account and call it Adjusting Entries, but then leave the debit and credit fields blank. If you assign the first line of the entry to this account, QuickBooks provides a “register” for you to locate these types of transactions and, at the same time, avoid the issue addressed in this section. See Figures 8.27 and 8.28 to see how adding the line at the beginning of the transaction solves the problem in reporting.

Figure 8.27. Including the fictitious bank account on the first line of a general journal entry prevents the source line (line 1) from being associated with each additional unrelated line.

Figure 8.28. QuickBooks no longer associates the vendor’s name with the unrelated general journal lines.

These simple tips often can help make your QuickBooks reporting much more accurate.

If you have journal entries recorded to your Accounts Payable account, your unpaid bills report might resemble Figure 8.29.

Figure 8.29. Your Unpaid Bills Detail report might show the general journal entry as unapplied.

→ If your Unpaid Bills Detail report includes journal entries, see “Applying Vendor Credits,” p. xxx.

Handling Unique Accounts Payable Transactions

So far, you have learned about the accounts payable transactions and workflow, preferences you can set to improve your data entry, reports to review when troubleshooting errors, and methods of correcting accounts payable errors. This section offers specific solutions to some of those unique transactions you might need to record.

Bartering Services with Your Vendors

Exchanging goods or services on a noncash basis with a vendor that is also a customer is commonly referred to as bartering. A common scenario is that your vendor also purchases your goods or services, and you plan to “swap” and not pay each other for the items purchased from each other.

To track the exchange of goods, follow these steps:

1. From the menu bar, select Lists, Chart of Accounts.

2. From the Account drop-down list, select New to create a new bank account, and type the name Bartering. If you have account numbering turned on, you also need to assign an account number. This bank account will always have a net zero balance if you record the transactions properly.

3. Click Save & Close.

4. From the menu bar, select Vendor, Enter Bills to record your vendor bill as if you were going to make the purchase from the vendor.

5. From the menu bar, select Vendor, Pay Bills. The Pay Bills dialog box opens. Select the bill for the vendor you will barter with.

6. In the Pay Bills dialog box, select the Bartering Account as the payment account (as in Figure 8.30). You can then choose to assign a fictitious check number and record only the amount that is to be traded. Any balance remaining can be paid as it normally would to the vendor.

Figure 8.30. When you are bartering goods with your vendor, choose the fictitious bank account when recording the “payment” of the vendor bill.

7. On the Home page, click the Customers button to open the Customers Center.

8. From the New Customer & Job drop-down list, select New Customer and complete the contact information for the new customer; otherwise, click to select the customer or job you will be bartering with to select it.

9. From the Customers Center, in the New Transactions drop-down list, select Invoices. Prepare the invoice to the new customer (also your vendor) using the same items on the invoice as if you were selling them to a customer. Click Save & Close.

10. From the Customers Center, in the New Transactions drop-down list, select Receive Payments. Record the fictitious payment from the customer (your vendor) for the same amount you are bartering. Click Save & Close.

11. Depending on how your preferences are set up for customer payments, deposit the fictitious customer payment into the same Bartering bank account you created earlier.

12. If you properly recorded the value of what you purchased as equal to the value of what you sold, your Bartering bank account will have a net zero ending balance. If not, return and review your entries. The amount shown as paid on the vendor bill and the customer invoice should be the same.

13. Any remaining balances on the vendor bills or customer invoices are handled as they normally are for those transactions.

Recording Vendor Prepayments

If your business is required to prepay a vendor for purchases, you can choose from a couple methods:

• Assign expenses to the other current asset type account, typically named Prepaid Expenses.

• Record a decrease (debit) transaction to the Accounts Payable account.

Often you have expenses that you must pay before you enjoy the benefit of the service or product being purchased. An example is a business’s general liability insurance. Typically, you pay several months in advance for this type of insurance. Recording this annual or semiannual expense all in one month would make that month unfairly take on the total expense.

A preferred method is to record the expense in equal monthly increments. The following steps show you how to record the original prepaid expense and record the expense to the individual months.

To accomplish this task, when you pay the insurance vendor, assign the expense to other current asset type account, and then create a recurring entry that QuickBooks uses to remind you to enter the expense. Or QuickBooks can automatically enter the expense each month, depending on how you set up the reminder. This example shows how you would prepay a general liability insurance bill of $12,000 for 12 months of coverage.

To record vendor prepayments, follow these steps:

1. Complete an Enter Bills or Write Checks transaction payable to your insurance provider. On the Expense tab of the transaction, assign the prepaid account, which is an other current asset type. In this example, the account is Prepaid Insurance.

2. Pay the bill to the vendor as normal.

3. Set up a recurring transaction to charge [1/12] of the total to each month. If the amount remains the same from month to month, set up the recurring entry to automatically post to QuickBooks. To do so, from the menu bar, select Company, Make General Journal Entries. Create a journal entry with a debit to your expense account and a credit to the prepaid other current asset type account.

The next step is to memorize the transaction so that QuickBooks can automatically record it each month, or remind you to do so. Follow these steps:

1. Create the transaction you want to memorize. You can also use this process to memorize any of the QuickBooks transaction types, checks, bills, invoices, and so on.

2. From the ribbon toolbar, Main tab (on most transactions), click Memorize to display the Memorize Transaction dialog box. You can memorize a transaction in other ways, too. With the transaction displayed, press Ctrl+M on your keyboard, or from the menu bar, select Edit, Memorize to open the Memorize Transaction dialog box.

3. Choose to have QuickBooks remind you of a specific frequency, or to have QuickBooks automatically enter the transaction (see Figure 8.31).

Figure 8.31. Memorized transactions can automate repetitive transactions or serve as a reminder to enter the transaction.

The other method discussed here is to record a debit balance to the vendor’s accounts payable account. This is appropriate if you will be using the prepayment soon as payment toward the final vendor bill. To do so, follow these steps:

1. From the menu bar, select Banking, Write Checks.

2. In the Pay to the Order Of field, select the vendor’s name.

3. Enter the amount of the prepayment.

4. On the Expenses tab, in the account detail area, select the Accounts Payable account (see Figure 8.32).

Figure 8.32. Assign the Accounts Payable account and the vendor name to a check when recording a vendor prepayment.

5. In the Customer:Job column, enter the vendor’s name (must be a vendor type for this method to work).

6. Click Save & Close.

QuickBooks now records a vendor credit (debit to Accounts Payable), as Figure 8.33 shows.

Figure 8.33. QuickBooks records the vendor prepayment as a negative entry to Accounts Payable (or a debit to Accounts Payable).

At a later date, you record a bill for the full purchase price and apply this credit, as Chapter 7 previously detailed.

Entering Midyear 1099 Balances

If you start your QuickBooks data file midyear (or at some other time than the first of a new calendar year), you might have amounts paid previously to vendors who are eligible to receive the Form 1099-MISC.

To properly record the amounts paid to vendors in your prior accounting software, and to make sure that QuickBooks reports all amounts paid to the vendor on the Form 1099-MISC, follow these steps:

1. From the menu bar, select Company, Make General Journal Entries. If you use any of the job profitability reports, leave the first line (source line) of the journal entry blank.

2. On the following lines (one line per vendor), in the Account column, enter the cost of goods sold account or expense account assigned in the preferences for Tax:1099.

3. For each Debit line amount, in the Name column, be sure to select the vendor’s list name (this must be a vendor type).

4. On the last line, enter one line total assigning the same account as the other lines so that the Debit column is equal to the Credit column (see Figure 8.34).

Figure 8.34. When starting a QuickBooks file midyear, create a general journal entry to record year-to-date vendor Form 1099-MISC income tax payments.

Your overall financials will not change because the same account was used for both the debit and credit sides of the transaction. Including the vendor name on the debit side of the transaction lines causes QuickBooks to include the amount in the reported Form 1099-MISC income amount.

Memorizing Recurring Transactions

QuickBooks can also help you not forget a recurring accounts payable bill. Memorized bills work best if the amount being paid is the same from month to month (or whatever frequency you set). An example is your rent payment.

To memorize a recurring accounts payable transaction, follow these steps:

1. Create a vendor bill as normal, assigning the amount and expense account that you want it to be associated with.

2. With the Enter Bills dialog box open, press Ctrl+M to open the Memorize Transaction dialog box (see the previous Figure 8.31).

3. Enter a name that identifies this transaction in the memorized transaction list.

4. Choose one of the available options and then click OK to close the Schedule Memorized Transaction dialog box:

• Add to My Reminders List—If you select this option, you need to choose how often and the next date you want to be reminded.

• Do Not Remind Me—Use this option if you want to stop permanently, or even temporarily, your reminders for this transaction.

• Automate Transaction Entry—Use this option if you want QuickBooks to create the entry automatically.

• Add to Group—You can assign multiple transactions to a group and then process them with one keystroke. First, create a group by choosing Lists, Memorized Transaction List from the menu bar. From the Memorized Transaction drop-down list, select New Group. Give the group a name and choose options for the group from the following options: Remind Me, Do Not Remind Me, or Automatically Enter.

5. Click Save & Close on your bill only if you want to create the vendor bill now and also add it to your memorized transaction list. If not, select Clear to remove the bill details, knowing that QuickBooks will prompt you to enter it on the frequency and date you selected.

To manually enter the transactions (if they’re not set to Automate Transaction Entry), from the menu bar, select Lists, Memorized Transaction List, or press Ctrl+T on your keyboard to quickly call up the list. Select the group or individual transactions you want to post by double-clicking the group or individual item from the memorized transaction list.

If you clicked a memorized group, QuickBooks creates each of the transactions in the group, asking you to assign a transaction date globally to all the transactions in the group. Use the memorized transaction tool to save time and to remind yourself to pay those important recurring bills.

Depositing a Vendor Refund

Occasionally, you might receive a refund from a vendor you previously paid. To add a vendor refund check to your bank deposit, follow these steps:

1. Create your deposit (normally done with customer invoice payments) as usual.

2. On the next available deposit line, enter the vendor name in the Received From column, and then choose one of these two options:

• If you do not have an open vendor credit in your Accounts Payable, select the expense account you want to reduce in the From Account column.

• If you do have an open vendor credit that you want to associate this refund with, select the Accounts Payable account in the From Account column. Then apply the deposit to the open credit.

3. Enter an optional memo.

4. Enter the amount.

5. Click Save & Close when the total of the deposit agrees with the bank deposit total.

Although this method is quite easy to use, it does not allow you to assign an item, so any refund recorded this way is not included in certain job cost reports that are prepared from the use of items.

Instead, you create a vendor credit to record the reduction in a job cost and then follow the preceding instructions for applying the deposit to the open vendor credit.

Paying and Recording a Credit Card Bill

You have flexibility in how you choose to record and pay your credit card bills. The decision is based on your own circumstances because several ways can be appropriate.

Options for recording credit card expenses include the following:

• Enter a bill to the credit card vendor, summarizing the total charges on one bill and entering a separate line for each expense account amount.

• Enter individual credit card charges. From the menu bar, select Banking, Enter Credit Card Charges. You might be prompted to add a credit card account to QuickBooks.

• Use the QuickBooks Online Banking feature, and automatically download your credit card charges and payments directly into your QuickBooks data file. Not all credit card providers offer this functionality. To see whether your card offers this option, select Banking, Online Banking, Participating Financial Institutions from the menu bar.

→ For more information, see “Bank Feeds,” p. xxx.

Options for paying your credit card bill include the following:

• If you selected to enter a bill to your credit card vendor, pay the bill as you do other bills, paying it partially or in full.

• If you selected one of the other two options, you need to create a vendor bill or check and, in the Account column of the transaction, assign the Credit Card type account you previously recorded the transactions to. The vendor bill simply decreases the balance owed on the credit card liability account.

The cash basis Balance Sheet might show this credit card payment amount if it is not paid by the date you prepare your financials.

→ For more information about how QuickBooks handles certain accounts on a cash basis, see “Accounts Payable Balance on Cash Basis Balance Sheet,” p. xxx.

QuickBooks offers two choices with the Automatically Recall Information preference (select Edit, Preferences from the menu bar and then select the General—My Preferences tab):

• Automatically Recall Last Transaction for This Name—Recalls both the account and the previous amount.

• Prefill Accounts for Vendor Based on Past Entries—Recalls only the account(s) used, not the amounts.

A more efficient process is to assign up to three default charts of accounts to each vendor record. To add these accounts, follow these steps:

1. From the Home page, click Vendors to open the Vendor Center.

2. Select the vendor to which you want to assign accounts, and click Edit Vendor to open the Edit Vendor dialog box.

3. Click OK to close the New Feature message, if it displays.

4. Click the Account Settings tab. In the fields provided, select the desired account(s) from the drop-down list.

If you rarely use the additional accounts, you might want to consider adding them only when needed. All newly created transactions include up to the three lines assigned. If you do not remove these lines, they result in blank lines of data in many reports.

The selected accounts override any preference setting for Recall or Prefill and instead insert these accounts automatically on a Write Checks or Enter Bills transaction. This is just another method to help you keep your accounting accurate.