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This month's topic is trading services with your customers, sometimes referred to as Bartering. Also, please note the client support issues you may encounter when updating from QuickBooks 6.0 R2 to R3 or higher.
I hope this helps you. Drop me an email with your comments.
Doug Sleeter
- QuickBooks 6 Release R3—File Format Change
- Trading Services with Your Customers (Barters)
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Alert ********
Possible Client Support Issue
QuickBooks version 6, release "R3" has just been posted to the Intuit website and it automatically downloads whenever you use the QuickBooks Update Service. Once the patch is installed, QuickBooks updates your company data files so they can only be used by QuickBooks with release R3 or higher. That is, R3 uses a new data format.
Background:
To find out what release level you have, launch QuickBooks and press Ctrl-1. At the top of the Product Information Screen you'll see: "QuickBooks Pro for Windows Version 6.0D Release R2," or something close to this. The "R2" means you have patch level R2 installed. In this case, you need to install the R3 release (or patch) which is available from the Intuit website.
When you Choose QuickBooks Update Service from the QuickBooks 6 Online menu, QuickBooks connects to the Intuit website and compares your version with the available "Patch" versions. If necessary, a patch will download onto the hard disk. The patch files are stored in a folder (or directory) called "Inet." The Inet folder is created in the directory where your company file is located. For example, if your company file is located in the "Finances" folder, then QuickBooks creates a subdirectory of the Finances folder called "Inet". This folder is where all the patch files are stored.
After you download the patch, QuickBooks automatically installs the patch as soon as you exit the QuickBooks program. You will get a message when you exit that asks you if you want to install the update. If you click yes, it installs automatically.
Possible Issues (incompatible files with different release levels): After installing the R3 update, the very next time you launch QuickBooks, it updates your company file to the new format needed by R3. This is similar to when you update from version 5 to version 6. Now that your file is updated to R3 format, you cannot open it with earlier release levels (R2 or R1) of QuickBooks 6. So, if the consultant has R3, but the client has R2, the client won't be able to trade files with the consultant unless the client updates to R3.
Also, if you are using QuickBooks on a network and only one of the copies of QuickBooks is updated to R3, then the others won't be able to trade files with that computer, or use the same files in multi-user mode, until all the computers on the network have upgraded to R3.
Therefore, in order for you to share files with other users, you'll need to make sure everyone is updated to release R3.
What if I don't have a modem, but I'm on a network with someone who does have a modem?
- Go to the computer that has a modem, and use the QuickBooks update service to download the patch. Remember, the "Inet" directory containing the patch files will be created in the directory where the company file (the one that's open when you go online) is located.
- Go to each computer on the network and complete step 3-9.
- See possible shortcut in step 10 below. Copy the Inet folder from the computer that downloaded the patch into a directory on drive C in a directory where you have the sample company (probably c:\qbooksw).
- Launch QuickBooks and open the sample company file.
- Quit QuickBooks
- QuickBooks asks if you want to install the update patch. (if it doesn't ask, you don't have Inet directory in the right place. Verify step 3 and try again.) Click yes when it asks if you want to install the patch.
- After the patch installs, launch QuickBooks and you will be prompted to update your company file. If you say yes, you will update the sample company file to an R3 file. You don't need to do this unless you want to.
- Now open your company file. You will be prompted to update the file to the new version. After you do this, your company file will no longer work with Release R2 or earlier.
- Possible shortcut after step 2. If your company file has not been updated to R3 (that is, you've never opened it with R3), then you can skip step 3 above, and instead of opening the sample company in step 4, open the company file on the network where the Inet folder is located. Then proceed with step 5 above. If you've already updated the company file to R3, go back and complete step 3.
- Copy the Inet directory to a Zip drive from a computer that's been updated. (It's about 3 MB, so it won't fit on a floppy)
- Follow step 3-9 above, or
- Contact Intuit. Ask them to send you the patch on diskette or CD ROM and install from disk.
Trading Services with Customers and Vendors If you buy services or products from your customers, you might want to "trade" 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:
Lists setup
For each customer you trade services with, set up a Customer record in the Customer list, and a Vendor record in the Vendor list. 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.
Then, create an "Other Current Asset" Account called "Trade Clearing" and an Item called "VendCredits". Select Trade Clearing in the Account field of the VendCredits Item.
Enter Invoices and Bills normally
When you buy from this customer/vendor, enter a Bill from the vendor Smith-V normally, and use whichever Accounts or Items the bill should apply to. Here is an example of a Bill recording a purchase of 5 units of 104 sliders (an Inventory Part) from SmithCo.
When you sell products or services to this customer/vendor, create an Invoice to Smith-C. Enter the Items you sell just like on any other normal invoice. Here is an example Invoice recording the sale of 20 hours of Design Services to SmithCo.
Enter Credits from the Vendor as Bill-Credits
When the Vendor "credits" your account, enter a Bill-Credit for the Vendor "Smith-V" as shown. In the body of the Bill-Credit, use the VendCredits Item. Keep in mind that the VendCredits Item is associated with the Trade Clearing Account, so this transaction decreases (credits) the balance in Trade Clearing.
To record your "credit" for your Customer’s account, enter a Credit Memo for the Customer "Smith-C". In the body of the Credit Memo, use the VendCredits Item. Again, just as in the Bill-Credit above, the VendCredits Item is associated with the Trade Clearing Account, so the Credit Memo transaction increases (debits) the balance in Trade Clearing. The combination of the Bill-Credit and the Credit Memo nets out to zero in the Trade Clearing account.
Apply the Credits
To apply the Credit Memo to the open Invoice for the customer Smith-C, use the Receive Payments screen. Enter Smith-C in the customer field and click "Apply Existing Credits" to apply the credit to an outstanding Invoice.
To apply the Bill-Credit to the open Bill for the Smith-V vendor, use the Pay Bills screen. In the Pay Bills screen, click the negative number (representing the Bill-Credit), and the positive number of the Bill that the credit should apply to.
Notice that since the Bill was for more than the Bill-Credit, QuickBooks creates a check for the difference.
In the Transaction Detail by Account Report, you can see all the accounting entries for this trade.
The checking account is lower by $300; the A/R, A/P, and Trade Clearing accounts are clear (0); the inventory account has increased by $300 (because the bill included an Inventory part); and the Design services income account has increased by $1,200.
