Our customer is also our vendor

1 minute read time.

Sometimes, you may encounter a situation when your customer is also your vendor. If you get a cheque from them, but with the net amount after they have deducted what you owed them, you may have a question of how to make this kind of entry in Sage 50.

First, you will need to create a contra clearing account and make sure the Account Class is set to bank under Class Options tab. Otherwise, you will not be able to choose it in the Deposit To box or Paid from box in the Sales and Purchases Invoice windows.  

Second, you will input the purchase invoice, which is the money you owe them by using the contra clearing amount. By doing this entry, you will debit the expense account, tax paid account and credit the contra clearing account. It will not touch your bank account, so bank reconciliation will not be affected and you can still input your expense.

Third, you will input the cheque, with deducted amount, from your customer. You bring up your sales invoice window. For the first line in the table, you still enter the correct amount that you are supposed to receive, not the deducted amount, to the revenue account. Then, on the second line, you enter the amount, which is credited to your contra clearing account in the second step, but in negative.  This entry will debit your bank account (the amount go in will be the deducted cheque amount), debit your contra clearing account (offset the credit amount in the second step and bring the account back to zero), credit the tax charged account and revenue account (correct revenue amount that you are supposed to have).

In conclusion, by doing the transactions above, the contra clearing account will be back to zero. Bank reconciliation will not be affected as only the deducted amount will go in. Finally, correct expense and revenue amount will be recorded in the book.

See you next time and happy Wednesday.