Dealing with Suppliers that are also Customers.

Legacy KB ID: 585

Question

How can I deal with Suppliers that are also my Customers?

Answer

Sometimes, people in business exchange services with each other. This is called barter. If you want to keep track of your barter activity in QuickBooks, you must assign dollar amounts to the services exchanged. If the value of each service is about the same, you can use a clearing account to record the exchange. That way, you'll have a record of each transaction.

The following example illustrates a possible barter situation.

1) I have a business making grandfather clocks. I made a clock for my gardener.

2) My gardener plants a dozen rose bushes for me.

3) I created an invoice in QuickBooks for my gardener for $100.

4) My gardener sends me a bill for $100.

5) We agree that we don't owe each other any money, but I want to record the transaction in QuickBooks.

There are two ways to handle this situation: -

Create a bank account called a "clearing" account against which you record each amount, thus ending up with a zero balance.

-Create two general journal entries for each balance, one for your gardener 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 from your gardener for $100 using the Clearing Account. (This will indicate a payment to this account.)

9) Receive payment of $100 from your gardener and deposit it into the Clearing Account. (This will indicate a deposit to this account.)

Result: The Clearing Account has a zero balance. The accounts payable and accounts receivable reports reflect the correct information. The income from the invoice and the expense from the bill indicate the true activity.

To create and use general journal entries for a barter transaction:

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 $100. This is the amount you owe your gardener.

5) Enter your gardener's name as the supplier on the same line.

6) On the next line, in the Account column, choose an expense account, such as Garden or Home Maintenance.

7) Enter a credit of $100 (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 $100. This is the amount your gardener would have owed you for the grandfather clock.

12) Enter your gardener'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. Garden or Home Maintenance).

14) Enter a debit of $100 (to offset the credit you just entered).

15) Click OK. Result: The expense account (Garden or Home Maintenance) has a balance of zero for this transaction. The accounts payable and accounts receivable reports, and the income and expense accounts indicate the true activity.

Need more help?

Please visit Reckon Community.

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