Record a contra in QuickBooks
“Boss, we invoiced Customer ABC $3000, but they only paid $1000. Do you want me to send a reminder letter to them for the balance of $2000?” I asked my boss. “No,” my boss replied firmly, “we owed them $2000 for repairing the machinery. I have already recorded the bill. You contra them off.”
Contra means to offset. It’s common in small businesses to offset the outstanding between the receivable and the payable when the customer is also your supplier.
QuickBooks Online (QBO) Contra with a Journal
When using QuickBooks Online, you can record a journal with accounts receivable and payable in one entry.
Here’s how it works for the journal method: Step 1: Debit the accounts payable and credit the accounts receivable in a journal. Step 2: Use a receive payment transaction to offset the credit (from the journal) to the outstanding sales invoice. Step 3: Use a pay bill transaction to offset the bills with the journal’s credit (debit balance).
The journal method in QuickBooks is remarkably straightforward. It’s a simple way to record a contra entry, making it a user-friendly option for anyone using the software.
QuickBooks Desktop Clearing account method
However, those who have switched from QuickBooks Desktop to QuickBooks Online and prefer to use the clearing account method can continue to do so.
The clearing account method: Step 1: Pay the supplier bill (the contra amount) via the clearing bank account. Step 2: Receive payment from the customer (the contra amount) into the clearing bank account—the clearing bank account will become zero. Step 3: Receive payment from the customer (the differences between the actual invoice outstanding and the contra amount) into your bank account.
Both methods require three steps and serve the same purpose—to offset receivables from payables. Either method works.