Step 6: Generate a credit memo of $1,000 to Company B and charge it to the AP/AR Offset account. Once selected and confirmed, the AR balance will be zeroed out and accounts payable (AP) can be addressed.
This will be Company B’s invoice of $1,000. Step 5: On the Apply Credit Invoices screen, select the invoice to which to apply the credit memo you just created. When asked what you would like to do with the credit, select Apply to an invoice and click OK. Step 4: Click Save and Close and you will see an Available Credit message. To do this, select Customer, then Create Credit Memos/Refunds. In the example we provided above, this would be the accounts receivable (AR) that your business, Company A, has due from Company B: $1,000. Step 3: Use a credit memo to zero out whichever is less, the AP or AR balance that you want to net. Step 2:Set up a Service item code titled AP/AR Offset, and have the item code account assigned to the AP/AR Offset account you set up in Step 1. Step 1:In your Chart of Accounts, create an account titled AP/AR Offset and label it under the ‘ Expense‘ account type. Now that you have the established net amount due, you can record and offset the accounts in Quickbooks by following these steps: $1,500 (AP – Accounts Payable) – $1,000 (AR – Accounts Receivable) = $500 (Net) Offsetting the Accounts in Quickbooks Rather than having both Company A and Company B make their respective payments, you have come come to an agreement that your company will simply pay the net balance of the two. Your current amount receivable amount from Company B is $1,000. At the same time, Company B owes you payment for one outstanding invoice for services rendered by your company. Your business, Company A, currently has 5 invoices payable to Company B for products purchased. Let’s look at an example situation to better understand how this is executed in Quickbooks: Establishing the AP, AR, and Net Amounts When this occurs, it’s essential to record the payment and clear the two accounts to create a balance and ensure your books are correct. In many of these situations, both companies may agree upon a deal that nets the payables and receivables, which results in one net payment either made or received by your business. If your business has both payables and receivables due to and from the same company, both accounts must be offset and cleared appropriately in Quickbooks. Understanding how offset payables against receivables in business accounting can be overwhelming if you aren’t familiar with this software, but The CFO Source is a valuable resource that’s here to help. QuickBooks is the ideal solution for organizing, managing, and analyzing your business’s finances. Quickbooks Tips: Offsetting Payables Against Receivables