Two Party Checks

by Bonnie Nagayama and Doug Sleeter June 15, 2009

This is an excerpt from The Sleeter Group’s QuickBooks Consultant Reference Guide Version 2009. This book has over 500 pages of tricks and works-arounds for difficult client situations. The QuickBooks 2009 edition is updated with extensive coverage of QuickBooks Enterprise Solutions, third party add-ons, and all the new features with the 2009 version. For more information on this resource, visit

In the construction industry, the bookkeeper will occasionally have to handle receiving a “two-party check.” A two-party check is payable to two companies, usually the prime contractor and a materials supplier, or other subcontractor. The reason is most often to ensure that the supplier is paid in a timely manner and that there is a direct link between the payment from the job and the payment to the supplier. It is also intended to prevent suppliers from attaching liens to the property by making it impossible for the prime contractor to fail to pay the supplier.

Here is our suggestion for how to handle two-party checks.

Start by sending the invoice to the customer just as you normally would. When you receive the payment (a two-party check), record the payment and deposit it to a “Trade Clearing” bank account. Next, record the bill from the supplier and pay the bill from the Trade Clearing account. Finally, send the endorsed check to the supplier and they should deposit the check into their bank account.

Figure 1 Handling Two-Party Checks in QuickBooks

The following pages show the detailed steps for how the general contractor in the graph above should handle the transactions in QuickBooks.

For our example Academy Glass does a job for a customer "Bob Mason".


Figure 2 Create a customer record for Bob Mason.

Academy Glass charges $1,000 for a "Custom Window" plus sales tax on an invoice to Bob Mason.

Figure 3 Create an invoice for the custom window in the amount of $1,082.50.

Academy Glass uses Ace Glass to provide the materials for the job.

Figure 4 Create a vendor record for Ace Glass.

Ace Glass submits an Invoice to Academy Glass who enters a Bill for $1,082.50.

Figure 5 Create a bill in the amount of $1,082.50 for Ace Glass.

Bob Mason (customer) sends a check for $1082.50 to Academy Glass (General Contractor), payable to both Academy Glass (General) and Ace Glass (Supplier).

In QuickBooks, record the payment from the customer and deposit the payment into the Trade Clearing bank account. The result will be a debit balance in the Trade Clearing register in the amount of $1,082.50.

Figure 6 Receive Payment from Bob Mason in the amount of $1,082.50

Academy Glass endorses the check and sends it on to Ace Glass who will deposit it. Academy Glass then uses “Pay Bills” to record payment to Ace Glass for $1,082.50. This bill payment is recorded in the Trade Clearing bank account.

Figure 7 Bill Payment recorded in the Trade Clearing account.

After recording all of the transactions above, you now have a zero balance receivable from the customer (Bob Mason), and a zero balance due to the vendor (Ace Glass).

Figure 8 Transactions for Bob Mason showing the payment deposited to Trade Clearing

The vendor (Ace Glass) shows the bill was paid out of the Trade Clearing bank account.

Figure 9 Transactions for Ace Glass showing the bill was paid out of the Trade Clearing account.

The Trade Clearing account shows the deposit from the customer, recording the receipt of the two-party check, and the bill payment to the vendor. These amounts zero out the balance of the Trade Clearing account.

Figure 10 The Trade Clearing bank account register shows the deposit and the bill payment.

This excerpt of The Sleeter Group’s QuickBooks Consultant Reference Guide was written by Bonnie Nagayama and Doug Sleeter and the members of The Sleeter Group Consultants Network.


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