- Customizing Your Home Page for Vendor Activities
- Preferences That Affect Accounts Payable
- Working with the Vendor Center
- The Accounts Payable Process
This chapter is from the book
This chapter is from the book
This chapter is from the book
The Accounts Payable Process
QuickBooks includes a flexible payable process. Your company can choose to use the purchase order and receive item transactions for controlling and monitoring costs and delivery, or you can skip these steps and simply create a bill to be paid later.
An important reason for using a vendor bill to record your business expenses is the ability to track the vendor’s bill reference number. In the event your vendor invoices you more than once for the same services or items, QuickBooks will optionally warn you when you enter a reference number that was previously recorded.
If you created your data file using the Express Start option you might need to enable the features as discussed in the earlier section “Preferences That Affect Accounts Payable” of this chapter. If you are ready to work in your own data file, make sure you have created your new file as discussed in Chapter 1.
Accounts Payable Forms
Many of the accounts payable forms use QuickBooks items. If you are considering using the accounts payable process for the first time, be sure to review Chapter 4, “Understanding QuickBooks Lists,” which discusses the use of items and how to set them up properly.
If you choose to use the purchase order transaction, you will need to create items. Items are a list of the products or services you sell to customers or purchase from vendors. The primary purpose of items is to perform the accounting behind the scenes and to automate the data entry process by prefilling descriptions, costs, and sales price on purchase and sales transactions.
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Many users inadvertently post revenue and expenses to the same account for Services, Non-Inventory Parts, Other Charges, and Discounts. The New Item dialog box includes a checkbox (see Figure 7.10) that enables you to avoid this problem and provide separate revenue and expense account fields. Choosing to set up items correctly can be one of the most important decisions you will make in using accounts payable.
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Figure 7.10. You can use the same item with both customers and vendor transactions.
Should you use items even if you do not plan on using the QuickBooks purchase order or item receipt transactions? I recommend that you do, especially if you follow the instructions in the preceding tip. A powerful feature of items is that each time the item is purchased or sold, QuickBooks records the amount to the specific account(s) defined in the Add New or Edit Item dialog box, reducing or eliminating potential errors created from recording the transaction to the wrong account when using the Expense tab of a purchase transaction.
How can items help you track your customer’s profitability? Many of the QuickBooks reports that provide profitability information are based on transactions recorded using items on the Items tab and will not provide the same information if the transaction is recorded using the Expenses tab.
For example, a home builder creates a budget for the project (using an estimate transaction) and wants to track actual versus budgeted expense. To take advantage of the many customer and job profitability reports, you must enter your expenses using the Items tab on an accounts payable bill (and use the same process for the check transaction), as shown in Figure 7.11.
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Figure 7.11. Use the Items tab to record expenses you want to track in customer or job profitability reports.
Table 7.1 lists the transaction types available in accounts payable and the purpose each type serves. You will also want to review Table 8.1 in Chapter 8, “Managing Vendors,” which outlines the accounting that goes on behind the scenes with these same transactions.
Table 7.1. Accounts Payable Transactions
Accounts Payable Transaction Name |
Primary Purpose of Transaction |
Purchase Order |
Document issued by a buyer to a seller indicating the products or services, quantity, and amounts the buyer has agreed to pay. |
Item Receipt (Receiving inventory, non-inventory, or other item recorded on a purchase order) |
Records receipt of inventory, non-inventory items, or other item types when the goods arrive before the vendor’s final bill. |
Enter Bills |
Records an increase to accounts payable and the associated expense. |
Vendor Credit Memo |
Records a decrease of what is owed to a vendor. |
Bill Payment Check |
Pays the vendor bill and decreases accounts payable and cash account balances. |
Accounts Payable Workflow
In this section you will learn about the importance of using the accounts payable process instead of writing a check for your business expenses. The QuickBooks Home page and Vendor Center, as shown in Figures 7.1 and 7.4, respectively, make managing all your purchasing activities easy.
Your Home page workflow might vary, depending on the version of QuickBooks you are using and the preferences you have enabled.
To perform typical vendor-related activities from the QuickBooks Home page, as shown in Figure 7.1, follow these steps:
- Access the Vendor Center.
- Create a purchase order to the vendor (optional).
- Receive inventory (optional).
- Optionally, enter bills against inventory.
- Enter a bill to the vendor.
- Pay the bill (typically within the agreed-upon payment terms for that vendor; for example, 30 days from the bill date).
Some companies choose not to use accounts payable transactions, but instead pay their vendors with a check (select Banking, Write Checks from the menu bar). Often, this choice is made because the process of paying a vendor with a check is quick and easy and takes fewer steps than creating and paying a vendor bill.
However, by choosing not to use accounts payable transactions, you ignore several important controls for managing the purchases your company makes. These purchasing controls include:
- Associating the bill with the purchase order (or item receipt) to automatically calculate quantity and cost—As soon as you enter the vendor’s name on a bill, QuickBooks prompts you with an open purchase order (or item receipt) dialog box, as shown in Figure 7.12, and prefills the bill for you.
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Figure 7.12. Warning provided when you enter a bill for a vendor that has an open purchase order.
- Receiving a warning when entering a vendor invoice number twice—It can happen: A vendor sends you a bill more than once and you pay it more than once. However, when you use a vendor bill (versus the Write Checks transaction) and you enter the vendor’s invoice number in the Ref No. field, QuickBooks warns you if the vendors reference number was used on a previous bill, as shown in Figure 7.13.
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Figure 7.13. QuickBooks provides a warning message when you enter a bill with the same reference (vendor invoice) number.
- Not recognizing costs in the month they were incurred—When you opt to use the Write Checks transaction instead of a vendor bill, QuickBooks uses the date of the check as the date the expense is recorded (recognized). How often do you pay the vendor’s bill the same day or month you receive it? You might be overstating or understating the expenses incurred in a specific month if you use the check instead of the bill form.
- Taking advantage of discounts offered by your vendor—Only if you use vendor bills can you set a preference to have QuickBooks automatically calculate and record the discount if you’re paying the bill within the vendors discount terms.
The purchasing controls and warnings provided in QuickBooks make using the accounts payable process a smart choice for your company. Additionally, your company will benefit from having financial statements that can be viewed in cash and accrual basis.
Entering a Purchase Order
Your business might choose to record purchase orders to track the expected product or service cost. Purchase orders are non-posting, which in accounting vernacular means when you record a purchase order you are not recording an expense or liability. Instead, a purchase order serves as a reminder that you expect to receive a bill from the vendor at a later date.
To learn more about working with purchase orders, see “Creating the Purchase Order,” p. 142.
Recording Vendor Bills
You are on your way to properly using accounts payable forms to help track and report on your business expenses. Learn how to enter your vendor bills in this section.
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Did you know by default QuickBooks requires you to use the Tab key on your keyboard to advance from one field to another on certain transactions?
If you inadvertently used the Enter key on your keyboard, QuickBooks might save and close the transaction. If this happens to you, use the Previous or Next menu at the top of the open dialog box to find the transaction you had not yet completed.
If you prefer to use the Enter key on your keyboard to advance between fields, you can set that preference in Edit, Preferences, General Preferences. On the My Preferences tab, select the Pressing Enter Moves Between Fields checkbox. Click OK to save and close your preference setting.
Practice Entering a Vendor Bill
To practice adding a new vendor bill, open the sample data file as instructed in Chapter 1. If you are working in your own file, use these instructions to begin entering bills for the products and services you have purchased:
- On the Home page, click the Enter Bills icon to open the Enter Bills dialog box, as shown in Figure 7.14.
Figure 7.14. Using the bill allows you to record the expense when incurred, but pay the vendor at a later date.
- From the Vendor drop-down list, type the first few letters of the vendor name ABC Cleaners (created earlier in this chapter). You might also select the vendor from the drop-down list by scrolling through the list and selecting a specific vendor.
- Using the Tab key on your keyboard, advance to the Date field. If you are practicing, accept the default date, otherwise enter the actual date for your transaction. In your file you can use the (+) or (-) key on your keyboard to change the date by a single day forward or backward. Other shortcuts are detailed in the Appendix C, “QuickBooks Shortcuts.” This date will be used to record the expense when viewing your financial reports in accrual basis.
- More information on the accounting for transactions can be found in Table 8.1 in Chapter 8, “Managing Vendors.”
- Type 1234 in the Ref. No. field. This represents the invoice number supplied by your vendor on his bill. If your vendor did not provide an invoice number, I often recommend using the digits of the bill date. For example, I might use 011717 as the Ref. No. if I were also dating the bill 01/17/2017.
- Using the Tab key again, advance to the Amount Due field and type 100. QuickBooks automatically formats the amount to be 100.00. In your own file, you can manage this preference by selecting Edit, Preferences, General, and selecting the My Preferences tab. If you enabled the Automatically Place Decimal Point option, QuickBooks would have formatted your input of 100 as 1.00 instead.
- The Bill Due, Terms, and Discount Date will prefill from the vendor’s record. You can override these inputs on the specific vendor bill you are entering. If no defaults are included in the vendor record, QuickBooks will then use the default due date calculation found on the Bills—Company Preferences tab of the Preferences dialog box (see Figure 7.15). You must be logged into the file as the Admin user or External Accountant to change the Company Preferences settings for bills.
Figure 7.15. QuickBooks uses the Company Preference terms when a vendor record doesn’t specify terms.
- Optionally, enter a Memo. This memo will print on the bill payment check. If your vendor record has a stored Account No. as detailed in the section on Adding or Modifying Vendors, leave the memo field blank and QuickBooks will include the Account No. on the printed bill payment check automatically.
- In this exercise, QuickBooks automatically prefilled the Account column on the Expenses tab with Repairs:Building Repairs. In this exercise, the account was set as a default for this vendor.
- Optionally, enter a memo for your reporting needs. This memo will not print on the final check. Although named similarly to the Memo field on the check, this field allows you to describe the transaction line for your reporting.
- Select a customer or job name from the list when applicable.
- Use the Billable? field when you specify a customer or job and you want to include this expense on a future customer invoice.
- If you are using Class tracking, enter the appropriate class.
- Click Save & Close.
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Other buttons on the Enter Bills dialog box include:
- Clear Splits—Useful when you want to condense multiple account rows into a single account row.
- Recalculate—The Recalculate button updates the Amount Due field, which is helpful when you have added additional line items.
- Save & Close or Save & New—Choose Save & Close if you don’t need to add another bill, or Save & New to display a blank Enter Bills transaction.
- Revert—Click this button when you want to undo changes to a previously saved vendor bill.
Creating a Vendor Credit
Now that you are recording your business expenses with vendor bills, what about returning a product to the vendor or receiving a credit for a service not preformed to your specifications? The next section will show you how easy it is to create a vendor credit.
Practice Creating a Vendor Credit
To practice creating a vendor credit, open the sample data file as instructed in Chapter 1. If you are working in your own file, use these instructions to begin entering credits you receive from your vendors:
- On the Home page, click the Enter Bills icon.
- Select the Credit option at the top of the Enter Bills dialog box (see Figure 7.16). The dialog box now displays a credit, decreasing accounts payable and decreasing the account(s) assigned on the Expenses tab, or if you are using the Items tab, the account assigned to the item(s) being used.
Figure 7.16. Credits reduce what you owe your vendor and the account assigned on the credit or associated with the item.
- To continue with the practice example we used earlier, begin typing the vendor name ABC Cleaners. Press the Tab key on your keyboard to advance to the Date field.
- If you are practicing, accept the prefilled date. In your own file, you can select the date from the calendar.
- Enter 1223 in the Ref. No. field. This is the credit memo number your vendor has assigned this record.
- In the Credit Amount field enter 100.00.
- Enter an optional memo. If you want the memo to display in reports based on your expense lines, be sure to use the memo field in the Expenses tab or the Description field on the Items tab.
- In this exercise, QuickBooks used the Repairs:Building Repairs expense account assigned to the vendor record and the amount entered in the Credit Amount field. If needed, you can change the account or add additional lines.
- Click Save & Close.
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NOTE
For ease in typing, QuickBooks will format the date for you. For example, if your current computer system year is 2016, you would only need to type 1220 in a date field and QuickBooks will format the date as 12/20/16.
This vendor credit is currently unapplied and available to be applied when you record a bill payment. If you know that a vendor has an unpaid bill pending, you can apply the credit against that bill now, or wait until the next time you need to pay the vendor.
Paying Vendor Bills
One of the benefits of entering vendor bills is that you can record the expense during the month you incur it, but pay the balance owed at a later date.
If you are ready to pay your bills, make sure you have a vendor bill or some record of the expense being incurred. Develop a process at your business for accurately reviewing your unpaid bills.
Practice Paying Vendor Bills
To practice paying a vendor bill, open the sample data file as instructed in Chapter 1. If you are working in your own file, use these instructions to begin paying the bills you owe your vendors:
- On the Home page, click the Pay Bills icon.
- For this exercise, leave the Show All Bills option button selected. When working with your own data, you can filter the bills that display in the Pay Bills dialog box by selecting the Due On or Before option button and entering a date (see Figure 7.17).
Figure 7.17. Use the Pay Bills dialog box to record payment by check, credit card, or online payment to your vendor.
- In the Filter By drop-down list, select C.U. Electric or begin typing the name as you learned in an earlier exercise.
- Review the choices available in the Sort By drop-down list, but leave Vendor selected.
- Place a checkmark next to each of the bills for C.U. Electric, or optionally click the Select All Bills button. If you are printing checks, QuickBooks will create one check for the two selected bills displayed in Figure 7.17.
- When working with your own data, if you did not want to pay the full balance you can manually type an amount in the Amt. To Pay column on a specific bill’s row. Later when you are prepared to pay the balance, QuickBooks will include the remaining balance due in the Amt. To Pay column.
- With a bill selected, click the Go to Bill button. QuickBooks opens the Enter Bills dialog box where, if necessary, you could make changes. Click Save & Close to return to the Pay Bills dialog box.
- Optionally view the discount terms or credits available, QuickBooks will display a special dialog box. More details are provided about working with discounts and credits in the next section.
- When working with your own data, you can specify payment options in the Payment section of the Pay Bills dialog box, including the following fields (for this exercise, leave the choices as displayed in Figure 7.17):
- Date—This is the date that will print on your checks or will be assigned to the transactions in your accounting.
- Method—Select Check if you will be printing a check or recording a manually written check. Select Credit Card if you are paying the bill with the company’s corporate credit card. Select Online Bank Pmt if you are using online banking.
- To Be Printed or Assign Check Number—If you selected Check as your method of payment, you can select the To Be Printed option button. If you manually wrote the check, you can select Assign Check Number.
- Account—Depending on your Method selection, you will assign either the bank account or credit card account used to make the payment.
- Ending Balance—QuickBooks displays the ending balance for your bank or credit card account selected.
- Click Pay Selected Bills. QuickBooks opens the Payment Summary dialog box.
- Review the details displayed in the Payment Summary dialog box including payment date, account, and method.
- Click the Print Checks button on the Payment Summary dialog box. Optionally, you can click the Pay More Bills button to return to the Pay Bills dialog box or click Done if you do not want to practice printing (using plain paper).
- If you selected the Print Checks button, the Select Checks to Print dialog box displays. Leave selected the default Bank Account and the prefilled First Check Number.
- Review the list of checks to be printed. Each will have a checkmark in the column to the left. Remove the checkmarks from any checks you do not want to print at this time.
- Click OK to open the Print Checks dialog box. Select your printer from the Printer Name drop-down list, and then choose the proper Check Style from Voucher, Standard, or Wallet.
- Click Print. For this exercise, make sure you have plain paper in your printer. A check printed to plain paper is not a negotiable document.
- The Print Checks – Confirmation dialog box displays. In this exercise, click OK to close the confirmation.
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New for QuickBooks 2012 is a feature to prepare a bill payment check for a single vendor directly from the Enter Bills dialog box.
To do so, open a previously saved vendor bill, select the Pay Bill option at the top of the Enter Bills dialog box. The Pay Bills dialog box opens with the Filter By field already selected for the same vendor as the open vendor bill.
You have now learned how to complete basic accounts payable tasks including using bills to record your expenses and preparing the payment for the vendor. In the next sections, you will learn how to work with vendor discounts and credits.
Applying Vendor Credits
Your vendor might offer discounts for timely payment or issue a credit for products or services that did not meet your expectations.
Continue your QuickBooks practice by applying the vendor credit created in an earlier practice section of this chapter.
Practice Applying Vendor Credits
To practice applying a credit, open the sample data file as instructed in Chapter 1. If you are working in your own file, use these instructions to apply vendor discounts or credits to your vendor’s open balances:
- Review your preference for applying credits. From the menu bar, select Edit, Preferences, and go to the Bills—Company Preferences tab on the Preferences dialog box. (You must log into the file as the Admin or External Accountant user type.) Refer to Figure 7.15. These settings determine if QuickBooks automatically applies any open credits for you. If you don’t select the Automatically Use Credits checkbox, you will manually apply the credits. Pick the selection that best meets your business needs.
- Click OK to close the Preferences dialog box.
- On the Home page, click the Pay Bills icon. The Pay Bills dialog box opens.
- For this practice, select the ABC Cleaners vendor in the Filter By drop-down list. Filtering can be useful if you have many open invoices for multiple vendors, but it is not required.
- Place a checkmark next to the open bill you want to apply the vendor credit to. If you didn’t select to apply credits automatically in step 1, QuickBooks will show the total number of credits and their total value in the Discount & Credit Information for Highlighted Bill section (see Figure 7.18).
Figure 7.18. With a vendor bill selected, QuickBooks will show the number of available credits for that vendor.
- If you want to modify the amount or which credits are selected, click the Set Credits button. The Discount and Credits dialog box displays as shown in Figure 7.19. You can modify which credit is selected by changing the checkmark from one credit to another or by manually overriding the amount in the Amt. To Use column.
Figure 7.19. The Discount and Credits dialog box allows you to manage how the credits are applied to open vendor bills.
- Click Done to close the Discount and Credits dialog box. Click Pay Selected Bills to exit the Pay Bills dialog box. If you are only associating a credit memo with a vendor bill, no additional check transaction will be created.
- Click Done in the Payment Summary dialog box or click Pay More Bills if you want to return to the Pay Bills dialog box.
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If you are an accounting professional and using QuickBooks Accountant or QuickBooks Enterprise Accountant you might want to use the Client Data Review feature. From one convenient window, you can assign the vendor unapplied credit memo to the open accounts payable bill, replacing the previous steps numbered 3–8.
- To learn more about time savings features for accounting professionals, see “Client Data Review,” p. 601.
Taking Discounts on Vendor Bills
Your company might be able to save money by paying your vendors within their allowed discount terms. Discounts are offered by some vendors to encourage quick payment of their invoices.
NOTE
When you need to change a prior year’s open balance for a vendor, credit memos can be the safest way to not inadvertently affect prior year financials. With a credit memo you can date the correcting transaction in the current year, important if you have already used your prior year’s data to prepare and file a tax return.
Practice Taking Discounts on Vendor Bills
To practice applying a vendor discount, open the sample data file as instructed in Chapter 1. For this practice we will complete all of the steps necessary for QuickBooks to automatically calculate the discount when paying a vendor bill. If you are working in your own file, you will need to log in as the Admin or External Accountant user type to set the preference mentioned. You can then use these instructions to apply discounts to your vendors open balances:
- From the menu bar, select Edit, Preferences and select the Bills—Company Preferences tab in the Preferences dialog box. Select the Automatically Use Discounts checkbox, as displayed previously in Figure 7.15.
- Select Job Expenses:Less Discounts Taken as the Default Discount Account.
- Click OK to save your selection and close the Preferences dialog box.
- Next, you will need to assign discount terms to a vendor. From the menu bar, select Vendors, Vendor Center.
- In the QuickBooks sample data, select Bayshore CalOil Service. To the right, click the Edit Vendor button. Click OK to the New Feature message if it displays.
- In the Edit Vendor dialog box for Bayshore CalOil Service, click the Additional Info tab.
- If it’s not already assigned, select the 2% 10 Net 30 terms in the Terms drop-down list. When selected, QuickBooks will calculate a 2% discount if the payment is dated within 10 days of the invoice date. Otherwise, the full amount is payable within 30 days.
- Click OK to save your changes and close the Edit Vendor dialog box.
- From the Vendor Center, with Bayshore CalOil Service, select Enter Bills from the New Transactions drop-down list.
- Using the Tab key, advance to the Ref. No. field. Type 567.
- In the Amount Due field, type 1,000.00. QuickBooks assigns the Terms and Discount Date and adds the amount to the Expenses tab.
- Assign Overhead to the Class column on the Expenses tab.
- At the top of the Enter Bill dialog box, select Pay Bill.
- Select Yes to record your changes. The Pay Bills dialog box displays with the vendor bill you just created already selected.
- Notice that as a result of selecting Automatically Use Discounts in step 1, QuickBooks displays the terms and the Sugg. Discount (see Figure 7.20).
Figure 7.20. QuickBooks automatically calculates early payment discounts.
- Optionally, you can click the Set Discount button to change the amount of the discount, assign a different discount account, and assign a discount class. Click Done to close the Discounts and Credits dialog box.
- For this practice, click Cancel to close the Pay Bills dialog box. If you are assigning discounts to your own vendor bills, continue with the check printing process.
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If you are going to assign discounts to your vendor bills, record your bills at the “gross” amount, or total amount before any discount. Then, over time you can watch the amount you have saved grow!
Caution
If you decide to add discount terms to your vendor’s record after creating vendor bills, you will need to edit any unpaid vendor bills and add the discount date manually.