We have a service provider who is also a client of ours. We charge this client on a monthly basis through A/R but we are also invoiced from him monthly for services provided. He has indicated that instead of us paying him by cheque, he would just like the amount owed to him to be offset against the amount he owes us. I know that we could just record a credit note to his A/R account and capture the expense that way but we would ideally like to set him up as a vendor in A/P as well so we can track the services he's provided. Is there an easy way to record the invoices in A/P but have the payments applied to his A/R?? Thanks!

Hi Cool Aid

There is no easy way. You have to enter the invoices in AP and AR and reduce them via credit notes, coded to a GL exchange account.

This issue comes up regularly, and although I don't work for Softrak, I'm sure they are considering adding this functionality in a future release.

Steve

Steve,

Issuing credit notes will reduce sales and reduce cost of sales. That's not so good for a number of reasons; comparative statistics, borrowing, inventory distortions, etc. I'm not even certain the IPAs (Independent Public Accountants) would like this suggested mechanism. I've got a situation where these offsets are material in amount. A US company and a German company buy each others products for resale in their respective countries.

Why not set up a new cash account (with appropriate bank code) to "wash" these offsets? You could pretend you got the cash for the receivable and pretend you paid the cash for the payable. The normal balance of this special cash account would typically be zero.

pc

Steve is suggesting that the Credit Note(s) be posted to a GL account other than Revenue (a "GL exchange account"). It isn't pretty and it involves more than 1 posting but it works.

Hi Cool Aid,

We do this all the time. We also have vendors who are also customers and some choose to have the amounts we owe them go to their receivable account. Maybe our method will work for you too.

Here's what we do:

Add an A/P Cheque Amount to A/R Account:

A/P
• A/P Cheque Batch for cheque amount.
• Uncheck “Print Cheque”.
• Post.

A/R
• A/R Cash Batch for cheque amount.
• Post.

Make sure you're using the same bank account in your AP cheque batch that you're using in your AR cash batch.

This accomplishes the same thing as if you printed a cheque for your vendor and he signed it back to you to apply to his AR account. Except you don't actually have to print a cheque. This will also enable you to have all your transactions in order in both Payables and Receivables.

Hope this helps.