Processing QuickBooks Vendor Credit

A recent question from a new QuickBooks user involved how to properly record vendor credits. QuickBooks makes it very simple to apply vendor credits if the proper procedures are followed. First you must understand exactly what a vendor credit is and how it affects your accounting records. It is also important to understand other vendor transactions that are NOT considered vendor credits and how to apply them properly.

Vendor Credit

What is a vendor credit? When you make purchases from vendors there may be a problem with your order such as damaged goods, the wrong items received or freight overcharges. You will have received and entered a bill for the purchase but your vendor needs to make adjustments to cover the order problems. The vendor will issue your business a credit on the bill to cover any order issues.

Accounts affected

In order to understand the process it is important to know what accounts are affected in the typical purchase process for business using the accrual accounting method. First you issue a Purchase order to your vendor, it is important to note that a purchase order is a non-posting document and does not affect any accounts in QuickBooks. Once the vendor receives the purchase order they will ship the goods and send your business the bill. When you enter the bill in QuickBooks it becomes an accounts payable liability. If you discover a problem with the order a vendor will issue a credit towards the bill and this credit REDUCES your accounts payable liability with that vendor.

The QuickBooks Credit Process

I am going to go through a purchase transaction with a credit to show all the steps involved. I have purchased 10,450 dollars of goods from “My Bad Vendor inc” of which 2,350 dollars worth of the product was defective AND they overcharged me for freight! Yikes!

Author: John

My name is John Cronkite and I operate Advanced QuickBooks Services. I am an Advanced certified QuickBooks ProAdvisor, QuickBooks ProAdvisor; Enterprise Solutions certified ProAdvisor and Point of sale certified Proadvisor. I am a member of the Intuit developer’s network and hold a B.S. degree in Managerial Accounting. . The official link to my certifications can be found on Intuit’s “Find a ProAdvisor” website.

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