I have a supplier who is also a customer. How do I show the bill and invoice as being paid when I owe the supplier and the customer owes me?

Legacy KB ID: 2102

Question

I have a supplier who is also a customer. How do I show the bill and invoice as being paid when I owe the supplier and the customer owes me?

Answer

If you have a supplier who is also your customer, you can end up in a situation where you owe each other money.

This is similar to barter, where two people exchange services with each other. You could send each other a cheque for the total amount each of you owes, but it would be easier to have the person who owes the greater amount send one cheque for the difference between the two amounts.

The following example illustrates a possible scenario, and is used throughout this document:

• My accountant sends me a bill for $75 and I record the bill in Reckon Accounts.
• I build a cabinet for my accountant and generate an invoice in Reckon Accounts for $100.
• My accountant sends me a cheque for $25 to cover the difference but Reckon Accounts shows that I still owe $75 to my accountant and they still owe me $75 for the cabinet.

There are two ways to handle this situation:

1. Create a bank account called a "clearing" account against which you record each amount, thus ending up with a zero balance.
2. Create two general journal entries for each balance, one for your accountant and one for your expense.

To create and use a clearing account:

1. From the Lists menu, choose Chart of Accounts.
2. Choose New from the Account menu button.
3. Choose Bank from the Type drop-down list.
4. Enter an account number.
5. Enter Clearing Account in the Name field.
6. (Optional) Enter an account description.
7. Click OK.
8. Pay the bill for your accountant for $75 using the Clearing Account. (This indicates a payment to this account.)
9. Receive payment of $75 from your accountant and deposit it into the Clearing Account. (This indicates a deposit to this account.)

Result: The Clearing Account has a zero balance.

To create and use general journal entries:

1. From the Activities menu, choose Make Journal Entry.
2. Fill in the date and an entry number.
3. In the Account column, choose Accounts Payable from the drop-down list.
4. Enter a debit of $75. This is the amount you owe your accountant.
5. Enter your accountant's name as the supplier on the same line.
6. On the next line, in the Account column, choose an expense account, such as Professional Fees:Accountant.
7. 7) Enter a credit of $75 (to offset the debit you just entered).
8. Click Next to go to the next journal entry form.
9. Make sure the date and entry number are correct.
10. In the Account column, choose Accounts Receivable from the drop-down list.
11. Enter a credit of $75. This is the amount your accountant owes you for the cabinet after sending you the cheque for $25.
12. Enter your accountant's name as the customer on the same line.
13. On the next line, in the Account column, choose the same expense account you chose before (e.g. Professional Fees:Accountant).
14. Enter a debit of $75 (to offset the credit you just entered).
15. Click OK.

Result: The expense account (Professional Fees:Accountant) has a balance of zero for this transaction.

Need more help?

Ask the Reckon Community at: https://community.reckon.com/categories/reckonaccounts

Or Log a Support Ticket: https://www.reckon.com/au/support/