How do you account for a cash payment by a customer in which some is used for payment to a vendor?

Question

I am using Quickbooks Pro 2011. I received a $750 cash payment from a customer, then used $150 of it to pay a vendor's invoice, creating a bank deposit of $600.

I can't figure out how to credit the customer, show the payment to the vendor and end up with a single check register deposit of $600.

I tried to do a split deposit such that there are two lines: one for $750 with the customer in the "Received From" field and the From Account being "Undeposited Funds". The other is for a negative $150 with the vendor in the "Received From" field and the From Account being "Repairs and Maintenance".

On the customer's account, they are properly credited for $750. And in the check register, I have the correct $600 deposit. But on the vendor's account, the $150 payment doesn't show up.

So I'm either missing one little thing or I need to do it a totally different way.

Answer 1

Sounds like you need a cash account. Suggest you do as follows:

1. Add an account to represent cash on hand – let's call it "Cash".
2. Record a deposit of the full $750 to "Cash".
3. Record the payment of the vendor's invoice from "Cash".
4. Record the deposit/transfer from "Cash" to your checking account.

This better models what actually happened in real life, rather than trying to adapt things into a system that lacks a cash account.

Answer 2

I am sorry, Cash is too vague to keep accurate records. Go back to the original question, where the transaction is described by User673. Customer pays $750 cash and User receives it. The entire $750 goes to Accounts Receivable-Customer to reduce his debt to User673, or it reflects a credit balance to be applied to future debt if it is a deposit. The entire payment from Customer is recorded accurately in his account. Now for the payment to Vendor and the $600 bank deposit, you Debit BankAccount for $600. The remaining $150 gets debited to Accounts Payable-Vendor. Following the path of User673's words, He handed Vendor $150, deposited $600 to BankAccount. You took the cash and Increased asset BankAccount while Decreasing the amount of Accounts Payable to Vendor.

This accurately reflects the steps you and the cash actually traveled. It prevents having to search for details later when auditing an account as general as "Cash" or "Undeposited Funds". For cleaner accounting, avoid using the general accounts as much as possible.

If you are set on BankAccount showing the entire $750, debit BankAccount for $750 and credit A/R-customer $750. Then Credit BankAccount for $150 and Debit A/P-Vendor $150. When balancing BankAccount you have to remember the $750 and $150 in your register is shown on the Bank statement as a deposit for $600.

You should have no problem with records if you follow the path the cash takes, you described it perfectly to account for. I would record it accurately and not enter $750 in the deposit register at all.

I am not familiar with the software, but I know accounting well. Keep It Simple and it will usually be apparent and easy to follow the chain of command with your income and expenses, no matter what system you use to keep good records. Might I suggest next time you get into a confusing situation like this, write down the details like you did here. You explained so simply that it was obvious where the stops were on the path the cash made through your hands, I think you will see it just as easily. Write it, take a little break to relax your mind and then read your words and you got it. Hope this has resolved your issue as well as helping you hurdle future stumbling blocks.