Trading Services between Customers and Vendors

If you buy services or products from your customers, you might want to “trade” services instead of paying each other. If you don’t exchange money, but instead exchange credits against what each other owes, you’ll need to record a few special transactions in QuickBooks to ensure that all your reports are accurate.

For example, if you sell the customer taxable Items, or if you buy inventory Items in the trade, you want to make sure your accounting is accurate even though no cash changes hands.

Use the following method of accounting for trades when either of the following occurs:

You owe money to one of your customers and they owe money to you. You pay the customer by issuing a credit on their account. They, in turn, issue a credit for an equal amount on your account to pay you.

You owe money to one of your vendors and they owe money to you. You pay the vendor by issuing a credit to their account. They, in turn, issue a credit for an equal amount on your account to pay you.

For each customer you trade services with, set up a Customer record in the Customer Center, and a Vendor record in the Vendor Center. The Customer and the Vendor are actually the same company, but in order to track both purchases and sales in QuickBooks, you need a Customer and a Vendor for the same company.

Figure 1-55 Create a customer record and a vendor record for the same company.

1. Create an Other Current Asset account called “Trade Clearing” as shown in Figure 1-56.
   
   
   Figure 1-56 Create a Trade Clearing Other Current Asset account.
2. Create an Other Charge Item called “Vend/Cust Credit” that posts to the Trade Clearing account as shown in Figure 1-57.
   
   
   Figure 1-57 Create an Other Charge Item that posts to Trade Clearing.
3. When you buy from this customer/vendor, enter a Bill from the vendor Smith & Smith-V normally, and use whichever accounts or items to which the bill should apply. Enter a Bill recording the purchase of five 104 Sliders (an Inventory Part) from Smith & Smith as shown in Figure 1-58.
   
   
   Figure 1-58 Enter a Bill from the “Vendor” when you purchase something from them.
4. When you sell products or services to this customer/vendor, create an Invoice to Smith & Smith-C. Enter the Items you sell just like on any other normal invoice. Enter an Invoice recording the sale of 20 hours of Design Services to Smith & Smith as shown in Figure 1-59.
   
   
   Figure 1-59 Create Invoices (not Sales Receipts) for the Customer.
5. After they received the Invoice shown in Figure 1-59, Smith & Smith offered Academy Glass a credit to their account in lieu of payment. To record the credit from Smith & Smith enter a Bill Credit as shown in Figure 1-60. In the body of the Bill-Credit, use the “Vend/Cust Credits” Item shown in Figure 1-57.
   
   Figure 1-60 To clear the trade, enter a credit for the vendor.

   The Accounting Behind the Scenes

   The “Vend/Cust Credits” Item is associated with the Trade Clearing Account, so this transaction decreases (credits) the balance in Trade Clearing and decreases (debits) Accounts Payable.

6. Since the Bill Credit shown in Figure 1-60 is in lieu of payment, you need to reduce the amount that Smith & Smith owes you for the Invoice shown in Figure 1-59. Enter a Credit Memo for the Customer "Smith & Smith-C." In the body of the Credit Memo, use the Vend/Cust Credits Item.
   
   Figure 1-61 To clear the trade, enter a credit memo for the customer.

   The Accounting Behind the Scenes

   The “Vend/Cust Credits” item posts to the Trade Clearing account, so the Credit Memo shown in Figure 1-61 increases (debits) the balance in Trade Clearing and decreases (credits) the balance in Accounts Receivable.

7. When you save the credit memo, you will see the Available Credit window (see Figure 1-62). Click Apply to an invoice and the click OK.
   
   Figure 1-62 The balance in Trade Clearing is now zero.
8. The Apply Credit to Invoices window (Figure 1-63) already has invoice 2006-101 selected. Click Done to apply the Credit Memo to apply the credit to the Invoice.
   
   Figure 1-63 Apply the customer credit using the Receive Payments screen.
9. Next, apply the Bill Credit to the open Bill for the Smith & Smith-V vendor using the Pay Bills screen. Select the Bill and click Set Credit to apply the Bill Credit. Notice that Academy Glass owes Smith & Smith $300 since the Bill from Smith & Smith was $300 more than the Invoice they sent to Smith & Smith.
   
   Figure 1-64 Apply the Bill Credit using Pay Bills.
10. Click Pay & Close. QuickBooks creates a Bill Payment for the $300 difference.
    
    Figure 1-65 QuickBooks creates a Bill Payment for the difference.

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