- 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 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. If your vendor invoices you more than once for the same services or items, QuickBooks preferences for Bills includes the option to be warned about duplicate bill numbers from the same vendor.
If you created your data file using the Express Start option, you might need to enable the features discussed in the earlier section “Preferences That Affect Accounts Payable.” If you are ready to work in your own data file, make sure you have created your new file as Chapter 1 instructed.
Accounts Payable Transactions
Many of the accounts payable transactions use QuickBooks items. If you are considering using the accounts payable process for the first time, be sure to review Chapter 4, which discusses the use of items and how to set them up properly.
If you choose to use purchase order transactions, you 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.
Should you use items even if you do not plan to use purchase order or item receipt transactions? I recommend that you do, especially if you follow the instructions in the nearby 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. This reduces or eliminates 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 do not provide the same information if the transaction is recorded using the Expenses tab.
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Many users inadvertently post revenue and expenses to the same account for Services, Non-inventory Parts, Other Charges, and Discounts when selecting a single chart of account. The New or Edit Item dialog box includes a checkbox (see Figure 7.10) that enables you to avoid this problem and provides separate revenue and expense account fields. Choosing to set up items correctly can be one of the most important decisions you make in using accounts payable.
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Figure 7.10 Set up items with both an income account and an expense account.
For example, imagine that 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 Write Checks transaction), as Figure 7.11 shows.
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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. Also review Table 8.1 on page 273 in Chapter 8, 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 a buyer issues 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 learn about the importance of using the accounts payable process in place of using the write check transaction type for recording business expenses. The QuickBooks Home page and Vendor Center, shown in Figures 7.1 and 7.5, 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 (see Figure 7.1), follow these steps:
- Access the Vendor Center.
- (Optional) Create a purchase order to the vendor.
- (Optional) Receive inventory with or without the final vendor bill.
- Enter bills against inventory (does not create an item receipt).
- 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 via the check transaction (from the menu bar, selecting Banking, Write Checks). 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 the following:
Associating the bill with the purchase order (or item receipt) to automatically calculate quantity and cost—When you enter the vendor’s name on a bill or write a check, QuickBooks prompts you with an open purchase order (or item receipt) dialog box (see Figure 7.12) and prefills the bill for you.
Figure 7.12 This warning displays 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—or, more likely, the user might inadvertently enter it twice. 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 vendor’s reference number appeared on a previous bill (see Figure 7.13).
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 transaction type.
- 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 are paying the bill within the vendor’s discount terms.
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The purchasing controls and warnings in QuickBooks make using the accounts payable process a smart choice for your company. Additionally, your company benefits from having financial statements that can be viewed in both 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 nonposting, which, in accounting vernacular, means that 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. 182, and also “Auto Create Purchase Orders,” p. 791.
Recording Vendor Bills
You are on your way to properly using accounts payable transactions to help track and report on your business expenses. You learn how to enter your vendor bills in this section.
Practice Entering a Vendor Bill
To practice adding a new vendor bill, open the sample data file as instructed in Chapter 1, p. 37. 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 transaction (see Figure 7.14).
- From the Vendor drop-down list, type the first few letters of the vendor name ABC Subcontractor (created earlier in this chapter). You can also select the vendor from the drop-down list by scrolling through the list and selecting a specific vendor.
Use the Tab key on your keyboard to 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. Appendix C details other shortcuts. You use this date to record the expense when viewing your financial reports in accrual basis.
See more information on the accounting for transactions in Table 8.1 in Chapter 8, p. 273.- Type 1234 in the Ref. No. field. This represents the invoice number your vendor supplied 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 121517 as the Ref. No. if I am also dating the bill 12/15/2017.
Using the Tab key again, advance to the Amount Due field and type 100. QuickBooks automatically formats the amount as 100.00. In your own file, you can manage this preference from the menu bar by selecting Edit, Preferences, General, My Preferences tab. If you enabled the Automatically Place Decimal Point option, QuickBooks would have formatted your input of 100 as 1.00 instead.
Figure 7.14 Entering a Bill enables you to record the expense when it is incurred but pay the vendor at a later date.
The Bill Due, Terms, and Discount Date fields 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 uses the default due date calculation on the Bills—Company Preferences tab of the Preferences dialog box (see Figure 7.15). You must be logged in to the file as the Admin user or External Accountant to change the Company Preferences settings for bills.
Figure 7.15 QuickBooks uses the Company Preferences term when a vendor record doesn’t specify terms.
(Optional) Enter a memo. This memo prints 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; QuickBooks includes 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. This account was set as a default for this vendor.
- (Optional) Enter a memo for your reporting needs. This memo does not print on the final check. Although its name is similar to the Memo field on the check, this field enables 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 that lists expenses and then a markup amount. If you do not invoice your customers in this manner, you can ignore this field and leave it checked or unchecked. To set a preference for this, from the menu bar, select Edit, Preferences, Time & Expenses. On the Company Preferences tab, select or deselect Mark All Expenses as Billable.
- If you are using Class tracking, enter the appropriate class.
- Click Save & Close.
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The ribbon toolbar at the top of the transaction window includes access to commonly used transaction features that were hidden or hard to find in previous editions of QuickBooks. The ribbon toolbar on an Enter Bill transaction includes the following tabs:
Main—Use this tab to access the following:
- Browse or search saved vendor bills or credits using the arrows.
- Create, save, delete, copy, or memorize vendor bills. The Save option on the ribbon toolbar keeps the transaction open. You’ll still use Save & Close or Save & New at the bottom of the dialog box after you complete your transaction.
- Print the vendor bill. You might do this to provide details to a sister company that is paying the bill or when you need management’s approval before paying.
- Attach source documents. This is a free service and offers local document storage on your computer.
- Select PO or Enter Time to autofill the vendor bill with stored information from these transaction types.
- Clear Splits removes the line detail on the Expenses or Items tab but retains the vendor name, date, and other information on the header portion of the vendor bill.
- Recalculate updates the Amount Due field, which is helpful when you have additional line items.
- Pay Bills opens the Pay Bills dialog box with Filter By selected for the same vendor displayed in the transaction and the bill marked ready to be paid.
- Reports—From this tab on the ribbon toolbar, access a variety of reports specific to this type of transaction.
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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 use the Enter key on your keyboard, QuickBooks might save and close the transaction. If this happens to you, from an open transaction dialog box, click the arrows on the Main tab of the ribbon toolbar in the top-left corner.
If you prefer to use the Enter key on your keyboard to advance between fields, you can set that preference from the menu by selecting Edit, Preferences, General Preferences. On the My Preferences tab, select the Pressing Enter Moves Between Fields checkbox. You can save a transaction using the Ctrl+Enter keyboard shortcut. Click OK to save and close your preference setting.
Recording Vendor Credits
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 that was not performed to your specifications? The next section shows you how easy it is to create a vendor credit.
Practice Entering a Vendor Credit
To practice entering a vendor credit, open the sample data file as instructed in Chapter 1, p. 37. 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 both what you owe your vendor and the account assigned on the credit or associated with the item.
- To continue with the earlier practice example, begin typing the vendor name ABC Subcontractor. 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.
- In the Ref. No. field, type 1223. This is the credit memo number your vendor has assigned this record.
- In the Credit Amount field, type 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 lines.
- Click Save & Close.
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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 either apply the credit against that bill now or wait until the next time you need to pay the vendor.
If you want to view this unpaid bill on a report, select Reports, Vendors & Payables, Unpaid Bills Detail report from the menu bar. An unapplied credit then is listed in this report, as Figure 7.17 shows.
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Figure 7.17 The Unpaid Bills Detail report makes it easy to see open vendor credits.
NOTE
For ease in typing, QuickBooks formats the date for you. For example, if your current computer system year is 2017, you need to type only 1220 in a date field, and QuickBooks formats the date as 12/20/17.
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 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, p. 36. 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 7.18).
- 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 creates one check for the two selected bills (see Figure 7.18).
Figure 7.18 Use the Pay Bills dialog box to record payment by check, credit card, or online payment to your vendor.
- 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 includes 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 can make changes. Click Save & Close to return to the Pay Bills dialog box.
- (Optional) View the discount terms or credits available. The next section has more details on working with discounts and credits.
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 in Figure 7.18):
- 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 can assign either the bank account or the credit card account used to make the payment.
- Ending Balance—QuickBooks displays the ending balance for the bank or credit card account selected.
- Click Pay Selected Bills. QuickBooks opens the Payment Summary dialog box.
- Review the details in the Payment Summary dialog box, including payment date, account, and method.
- Click the Print Checks button on the Payment Summary dialog box. (Optional) 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 (see Figure 7.19). Leave selected the default bank account and the prefilled first check number.
Figure 7.19 When printing checks, specify the first check number to print.
- Review the list of checks to be printed. Each has 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 in Figure 7.20, and then choose the proper Check Style from Voucher, Standard, or Wallet.
Figure 7.20 Select the printer name, check style, and other printer settings for preparing checks from QuickBooks.
- Click Print. For this exercise, make sure you have plain paper in your printer. A check printed on 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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To learn more about printer settings for checks, see “Printing Checks,” p. 526.
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 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 “Recording Vendor Credits” of this chapter.
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Using QuickBooks, you can efficiently prepare a bill payment check for a single vendor.
To do so, open a previously saved vendor bill; on the Main tab on the transaction ribbon toolbar at the top, click the Pay Bill icon. The Pay Bills dialog box opens, with the Filter By field already selected for the same vendor as the open vendor bill.
Practice Applying Vendor Credits
To practice applying a credit, open the sample data file as instructed in Chapter 1, p. 37. 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 in to the file as the Admin or External Accountant user type.) See the previous Figure 7.15. These settings determine whether QuickBooks automatically applies any open credits for you. If you don’t select the Automatically Use Credits checkbox, you must 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 example, select the ABC Subcontractor 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 shows the total number of available credits and their total value in the Discount & Credit Information for Highlighted Bill section (see Figure 7.21).
Figure 7.21 When paying vendor bills, QuickBooks shows the number of available credits for the selected vendor.
To apply the credit, or if you want to modify the amount or change which credits are selected, click the Set Credits button. The Discount and Credits dialog box displays (see Figure 7.22). You can modify which credit is selected by changing the checkmark from one credit to another or by manually overriding the Amt. to Use.
Figure 7.22 The Discount and Credits dialog box enables 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 the AMT. TO PAY column is 0.00, you have associated a credit memo with a vendor bill, and no additional check transaction is 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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New for QuickBooks 2014, if the open balance of a vendor’s bill is paid completely by a bill credit, QuickBooks includes the details of the invoice and bill credit on a bill payment stub.
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If you are an accounting professional 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-saving features for accounting professionals, see “Client Data Review,” p. 695.
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, which is important if you have already used the prior year’s data to prepare and file a tax return.
Taking Discounts on Vendor Bills
Your company might be able to save money by paying vendors within their allowed discount terms. Some vendors offer discounts to encourage quick payment of their invoices.
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.
Practice Taking Discounts on Vendor Bills
To practice applying a vendor discount, open the sample data file as instructed in Chapter 1, p. 35. For this practice, you complete all the steps necessary for QuickBooks to automatically calculate the discount when paying a vendor bill. If you are working in your own file, you 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, click Edit, Preferences, and in the Preferences dialog box, click the Bills—Company Preferences tab. Check the Automatically Use Discounts checkbox, as Figure 7.15 showed earlier.
- Select Job Expenses:Less Discounts Taken as the Default Discount Account.
- Click OK to save your selection and close the Preferences dialog box.
- 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 icon (looks like a pencil).
- In the Edit Vendor dialog box for Bayshore CalOil Service, click the Payment Settings tab.
- If not already assigned, select the 2% 10 Net 30 terms in the Terms drop-down list. When this option is selected, QuickBooks calculates 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, using the account used on previous transactions (or you can choose another account).
- Assign Overhead to the Class column on the Expenses tab.
- Click Save & Close.
- From the Home page, select Pay Bills.
The Pay Bills dialog box displays. Place a checkmark next to the Bayshore CalOil Service bill you just created. Notice that, as a result of selecting Automatically Use Discounts in step 1, QuickBooks displays the terms and the Sugg. Discount (see Figure 7.23).
Figure 7.23 Set QuickBooks preferences to automatically calculate early payment discounts.
- (Optional) 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 example, 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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CAUTION
If you decide to add discount terms to your vendor’s record after creating vendor bills, you need to edit any unpaid vendor bills and manually change the terms or discount date.