[Question] How to fix "you owed me, I owed you" ... and now we are square

[michellepace]

Hello

Sorry for the ridiculous title to my question, I couldn't think how else to put it. I have a situation where TeaGreen owes us R20,000 for items we sold to them (I had issued customer invoice). At the same time we owe TeaGreen R100,000 (and I have created a supplier invoice). Tea Green couldn't pay us. So what they did was simply reduce our outstanding balance to R80,000. So now in pastel, what is the best way to fix things.

We don't track inventory. So now to fix things, can I simply do this:

• For TeaGreen our Customer: Issue a R20,000 customer credit note
• For TeaGreen our Supplier: Create a R20,000 supplier Return & Debit
• And Bob's your uncle? VAT etc is sorted out properly?

[Dave A]

I think the word you are looking for is "offset". You are offsetting a portion of your liability to your supplier against their liability to you.

The way I process it is I have set up a bank account called Contra. I then process a payment to the supplier's creditors account and a receipt from the client's debtors account of equal value via the Contra account.

[Kevin Smith]

It is a payment issue which shouldn't affect vat and turnover - no credit note and returns should be processed. Either do as Dave suggested (can use petty cash cashbook - receipt 20 from them (customer), then do a payment to them for the same (Supplier) then reconcile both entries. The other option would be a customer journal to suspense, then a supplier journal to suspense, reducing the balances and clearing suspense.

[michellepace]

Hi Dave and Kevin. Thank you both for your replies. I think Dave's option will be easiest for me. But I'd actually like to learn to do both options.

The way I process it is I have set up a bank account called Contra. I then process a payment to the supplier's creditors account and a receipt from the client's debtors account of equal value via the Contra account.

At first Dave's suggestion, made no sense. But now thinking about it - I'm just making a fake little cashbook account. Ahh yes! That makes sense. But whilst I'm at it, what exactly does "contra" mean? (yes I know, barely educated in accounting :| )

The other option would be a customer journal to suspense, then a supplier journal to suspense, reducing the balances and clearing suspense.

Mmm... I've actually never done a Customer journal, not to mention reducing balances and "clearing" suspense. Sorry to ask Kevin but just so I can learn. Can you detail the steps I would need to do in order to do Option 2?

Thank-you both once again. I'll post on how I go with both Options (and plenty of backups )

[Dave A]

At first Dave's suggestion, made no sense. But now thinking about it - I'm just making a fake little cashbook account. Ahh yes! That makes sense. But whilst I'm at it, what exactly does "contra" mean?

"Contra" means "against" in this context. I suspect the term is used as each entry is in balance against a corresponding entry (or entries).

I also use it when one payment is received which needs to be allocated against multiple debtors, which is otherwise a bit fiddly in Quickbooks. What I like most about this method is all these types of transactions can be easily identified in one place (or in your instance, cashbook).