Hi Cranstc,

You may want to follow the step below:

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 adjust the payment method of the sales invoice from pay later to cash or check using the contra clearing account created in first step. This entry still credit the revenue account, tax charged account but debit the contra clearing account.

Third, you will adjust the purchase invoice. For the first line in the table, you still have the correct amount that you are supposed to pay to the expense account. Then, on the second line, you enter the amount, which is debited to your contra clearing account in the second step, but in negative.  This entry will credit your A/P account (the amount go in will be the deducted cheque amount), credit your contra clearing account (offset the debit amount in the second step and bring the account back to zero), debit the tax paid account and expense account (correct expense amount that you are supposed to have).

Fourth, you go to the payment window and pay the purchase invoice, which has the deducted amount.

In conclusion, by doing the transactions above, the contra clearing account will be back to zero. Both the receivable and payable of the customer/vendor are closed. Finally, correct expense and revenue amount will be recorded in the book.

Hope this helps.

Another method is to do as per Keith above but create a separate invoice for each side - a credit invoice for A/R with Inv nbr something like ContraA/P?? and enter the amount as the amount to contra with no taxes and code to the contra account. Then go into receipt module and clear the invoices against the credit invoice. Then do the same for A/P with invoice nbr something like ContraA/R???. No when you go to pay the vendor it will show the full amount of each vendor invoices along with the A/RContra??? credit invoice which will help them to understand what you have done.

Another method is to do as per Keith above but create a separate invoice for each side - a credit invoice for A/R with Inv nbr something like ContraA/P?? and enter the amount as the amount to contra with no taxes and code to the contra account. Then go into receipt module and clear the invoices against the credit invoice. Then do the same for A/P with invoice nbr something like ContraA/R???. No when you go to pay the vendor it will show the full amount of each vendor invoices along with the A/RContra??? credit invoice which will help them to understand what you have done.