Of course, here is a detailed guide on how to use vendor credits in QuickBooks.
How to Use Vendor Credits in QuickBooks: A Complete Guide
Hello there! Have you ever had a situation where a vendor sends you a credit memo after you've returned goods or received a discount? If you're a business owner or a bookkeeper, you know how important it is to track every penny. But what do you do with that credit in QuickBooks? If you've ever felt a little lost on how to apply that credit to a future bill, you're not alone! Let's dive in and master the process together.
Step 1: Understand What a Vendor Credit Is and When to Use It
Before we get into the "how," let's clarify the "what."
A vendor credit in QuickBooks is essentially an amount you're owed by a vendor. Think of it as a negative bill. It could arise from several situations:
You returned goods to a vendor, and they issued a credit memo.
You received a discount after paying for an item.
There was a billing error in your favor.
You paid for a service but were overcharged.
Recognizing these situations is the first step to managing your finances effectively. So, do you have a vendor credit memo in your hand right now? Great! Let's move on to the next step.
Step 2: Enter the Vendor Credit into QuickBooks
This is the most crucial part of the process. You need to tell QuickBooks that you have a credit waiting to be used.
Sub-heading 1: Entering the Credit in QuickBooks Online (QBO)
Navigate to the 'Vendors' or 'Expenses' Tab: On the left navigation bar, click on Expenses, then select Vendors.
Select the Correct Vendor: Find and click on the name of the vendor who issued the credit.
Create the Credit Memo: In the vendor's profile, click the New Transaction button, and then select Vendor credit.
Fill in the Details:
Vendor: This should be pre-filled.
Payment Date: Enter the date you received the credit memo.
Ref #: It's a good practice to enter the credit memo number from the vendor's document. This helps with matching later.
Category Details: This is important. You need to assign the credit to the correct expense account. For example, if you returned inventory, use the
Inventory Assetaccount. If you received a credit for a service, use the correspondingExpenseaccount (e.g.,Job SuppliesorRepairs and Maintenance).Amount: Enter the credit amount.
Save and Close: Click Save and Close. You have now successfully entered the vendor credit!
Sub-heading 2: Entering the Credit in QuickBooks Desktop (QBD)
Go to the 'Vendors' Menu: From the top menu bar, select Vendors, then Enter Bills.
Select 'Credit': Instead of selecting 'Bill', you'll see a button at the top that says Credit. Click on it. This changes the bill entry form into a credit entry form.
Fill in the Information:
Vendor: Select the correct vendor from the dropdown list.
Date: Enter the date of the credit memo.
Credit No.: Enter the credit memo number.
Expenses/Items: This works just like a bill. You can either use the
Expensestab or theItemstab.Expenses Tab: Use this for credits related to services or non-inventory items. Select the correct expense account and enter the amount.
Items Tab: Use this if the credit is for returning inventory items you purchased.
Save: Click Save & Close.
Step 3: Apply the Vendor Credit to a Bill
Now that the credit is in the system, it's ready to be used.
Sub-heading 1: Applying the Credit in QuickBooks Online (QBO)
Create a New Bill (or find an existing one): Go to Expenses > Vendors and find the vendor.
Select the Bill: Click on the bill you want to apply the credit to. It must be an open bill from the same vendor.
QuickBooks will Prompt You: When you open the bill, QuickBooks will show a notification on the right side of the screen that says "You have a credit for this vendor."
Apply the Credit: Click on the Add link next to the credit amount. A checkbox will appear. Check the box for the credit you want to apply.
Save and Close: The bill's total will be reduced by the credit amount. Save and Close the bill. The credit is now applied!
Sub-heading 2: Applying the Credit in QuickBooks Desktop (QBD)
Go to 'Pay Bills': From the top menu, select Vendors > Pay Bills.
Select the Bill: In the list, check the box next to the bill you want to pay.
Click 'Set Credits': At the bottom of the window, you'll see a button that says Set Credits. Click it.
Apply the Credit: A new window will pop up showing all available credits for that vendor. Check the box next to the credit you want to use.
Click 'Done': The credit amount will be applied, and the bill's amount to be paid will be reduced.
Pay the Remaining Balance: Now you can proceed to pay the remaining balance of the bill. You can choose to pay it by check or credit card. This is a crucial step—you're only paying the difference.
Click 'Pay Selected Bills': QuickBooks will generate a payment transaction, and the credit will be fully utilized.
Step 4: Check Your Reports to Confirm
After applying the credit, it's always a good idea to check your reports to ensure everything is correct.
Vendor Balance Detail Report: Go to Reports > Vendors & Payables > Vendor Balance Detail. Look at the report for that specific vendor. You should see the bill, the credit, and the payment all lined up, with a zero or reduced balance.
Accounts Payable Aging Summary: This report will show that the bill's balance has been reduced or paid off completely. This is your final confirmation that the credit has been used correctly.
Congratulations! You've successfully managed a vendor credit in QuickBooks. You've not only saved money but also maintained accurate financial records.
10 Related FAQs
How to enter a vendor credit for a return of inventory?
To enter a vendor credit for inventory returns, use the "Items" tab when entering the credit memo and select the specific inventory item(s) you returned. This will reduce your inventory asset value and quantity.
How to apply a vendor credit to a future bill?
A vendor credit can only be applied to a bill from the same vendor. When you open an unpaid bill from that vendor, QuickBooks will automatically prompt you to apply any available credits.
How to check if I have a vendor credit available?
You can check for available vendor credits by running a "Vendor Balance Detail" report in QuickBooks. It will list any open credits for each vendor. You can also see them listed when you are in the "Pay Bills" window.
How to handle a vendor credit that is larger than the bill?
If a vendor credit is larger than the bill, you can apply the full credit. The remaining credit balance will stay on the vendor's account, ready to be applied to another future bill.
How to edit or delete a vendor credit?
You can find the vendor credit in the vendor's transaction history (in the "Vendors" or "Expenses" tab). From there, you can open it and either edit the details or delete the transaction if it was entered incorrectly.
How to create a bill in QuickBooks?
To create a bill, go to the "Vendors" or "Expenses" tab, click "New Transaction," and select "Bill." Fill in the vendor, date, amount, and expense details, then save it.
How to apply a vendor credit in QuickBooks for a partial payment?
When you apply a credit and pay the rest, you are essentially making a partial payment with the credit. Just apply the credit, and the remaining balance will be due, which you can pay later or partially.
How to view a vendor's transaction history?
To view a vendor's history, go to the "Vendors" or "Expenses" tab, find the vendor's name, and click on it. You will see a list of all bills, payments, and credits associated with that vendor.
How to run a report to see all vendor credits?
Run a "Vendor Balance Detail" report from the "Reports" menu. You can then filter the report to show only credit memos to see all the vendor credits you have in the system.
How to apply a vendor credit to an expense and not a bill?
You can't directly apply a vendor credit to an expense. A vendor credit is specifically designed to be applied against an open bill from the same vendor. For a direct expense reduction, you would typically just enter the net amount of the expense.