Trading Credits Between Jobs in QuickBooks

I occasionally get clients (particularly contractors) asking me if they can transfer the overpaid balance from one project to another, often from a completed project to a new project. They thought it would be easy. They thought they could create a journal entry and debit Accounts Receivable for the overpaid job and credit Accounts Receivable for the new job. Then they find out that you can’t have more than one Accounts Receivable or Accounts Payable line in a journal entry. Thus the phone call!

This is an excerpt from MB Raimondi’s QuickBooks Live Webinar  titled “Customer & Vendor Tricky QuickBooks Transactions” on April 30 2012.

Although you could use journal entries to accomplish the transfer, I tend to stay away from journal entries and try and use the built in sales transactions in QuickBooks.  QuickBooks is “forms” based.  I feel that it’s a good practice to use those forms when you can.  As accountant’s we are used to doing journal entries but our clients might not like how they show up on reports.  The accounts that I generally avoid using journal entries with are:  Accounts Receivable, Accounts Payable and bank accounts.

Let’s look at an example, where the new job is the Poolhouse,  which is already set up in QuickBooks. The Kitchen job has an overpayment of $680 that Doug Jacobsen wants transferred to the Poolhouse.

Step 1: Clearing Account

Set up a Clearing (or Trading) Account on your Chart of Accounts as a Bank type of account.

Step 2:Write a Check

Write a check for the amount of the credit from the Clearing Account.

• Use the job that has the credit as the Payee. In our case, it is the Kitchen job
• The amount of the credit to be transferred is the amount of the check
• Under the Expenses tab, use the Accounts Receivable account
• Enter the job name again under the Customer:Job column
• Click Save &Close

This will decrease (credit) the Clearing Account and increase (debit) Accounts Receivable for the Kitchen Job .

Step 3: Apply the Credit

Apply the two postings to Accounts Receivable for the job that just gave up the credit (Kitchen).

• Open the Receive Payment screen
• Enter the name of the job that had the credit (Kitchen)
• Highlight the open amount
• Click on Discounts and Credits
• Check the credit, if not already checked off
• Click Done
• Click Save & Close

Step 4: Receive a Payment

Receive a payment for the job that receives the credit.

• Open the Receive Payment screen
• Enter the job name that will receive the credit (Poolhouse)
• Enter the amount of the credit received
• Use a payment method (which you will need to set up) called Trade (optional – but it clarifies the transaction)
• Click Save & Close

Step 5: Deposit the Payment

Deposit the payment into the Clearing Account.

I am assuming that all payments are automatically being posted to Undeposited Funds. If that’s not the case, you can choose the Clearing Account directly from the Receive Payment screen.

• Click on Record Deposits from the Home Page
• Select just the payment for the trade

• Click Okay
• Change the bank account to the Clearing Account

• Click Save & Close

The results are:

• The Clearing Account balance is zero

• The credit is transferred and appears on the correct job.

BEST PRACTICES TIP: Use the Memo field on the transactions to describe the action. Memos will show up on reports and statements.

In order for the memo to show up on the Statement for the “check” written, it must be entered on the Accounts Receivable line.

There are other reasons that you may need to trade balances. For example, you may have a customer who is also a vendor. You buy from them; they buy from you; and you agree that one business will just pay the difference between the invoice and the bill. You need to record the full expense and the full income but you are not receiving the full amount and are not paying the full amount – so you need to figure out a way to reduce the payable and reduce the receivable without cash exchanging hands. The idea behind recording the transactions is similar to what we discussed here but the transactions are a little different. Another topic for another time!

The same holds true for bartering. If you barter with your customers or vendors, at least some part of the transaction does not involve cash, but you have to reduce the receivable or the payable.

Both of the above examples use a Clearing Account. Think about the Clearing Account as your Non-Cash Bank Account and then apply the principles talked about in this article.

Want to learn more? This is an excerpt from MB Raimondi’s QuickBooks Live Webinar titled “Customer & Vendor Tricky QuickBooks Transactions on April 30 2012. Go to The Sleeter Group’s QuickBooks Live Webinar page to sign up!

Tags: Construction, QuickBooks, Sleeter, Webinar

Category: Construction, For Consultants/Accountants, Industry Solutions, QuickBooks Tips/Tricks, Working with QuickBooks