Sometimes we have the situation where a supplier is also a customer. In both Quickbooks and MYOB it is necessary to have a separate record for each. Quickbooks will also not allow a supplier name to be identical to a customer name, so one needs to be slightly different, for example a dot can be added to the end of the supplier name.
When dealing with such situations, it is recommended that the settling of accounts be done as for any other customer or supplier, and that no offsetting of balances be carried out i.e. pay the supplier in full, who in turn, pays their customer balance to us in full. This keeps things simple and is better from an internal control point of view, leaving a clear audit trail.
The easiest way to offset balances in most accounting systems is to create a Bank type account exclusively for this purpose, calling it, say, "Contra Payments". The word Contra, implies that this account should have a zero balance at all times. To offset such balances, simply process payments using the Contra Payments account as the bank account:
- Establish the amount being offset (usually the smaller of the supplier and customer balance)
- process a payment to the supplier for this amount, paying from the Contra Payments account
- process a customer receipt from the customer for this amount, receipting the amount directly to the Contra Payments account
- ensure that both the date and amount of each entry above is the same
- payment of the larger of the two balances will be a part-payment:
- when complete, check that the balance of the Contra Payments account is NIL