Netting A/R to A/P – Hard Way vs Easy Way

This example is about deducting a cleaning bill from a tenant deposit. There is a complicated way and an easy way. Look at both ways and figure out which makes sense for you in your business.

Either way, before you cut a refund check for the deposit, you will need to check for either an outstanding invoice for the cleaning or for an unbilled cleaning expense. Both methods of checking for the cleaning cost can be easily done but you will have to remember to check for deductions against the deposit in both cases.

I will first walk you through the complicated way, which involves creating an invoice and, then netting it against the deposit on a check. I say “complicated way” because this requires the most steps in QuickBooks. If you get tired of following the steps, I suggest you scroll down to the easy way.

The Complicated Way

Step 1 - Enter a bill or write a check for the cleaning service, select the tenant from the customer list, and check the line item as billable.


Step 2 - Create an invoice from the billable expense. This can be done from the Home page using the create invoices icon but it’s a good idea to select “Customers/Invoice for Time and Expenses” from the QuickBooks main menu because you will continually be reminded of any unbilled expenses.


Step 3 - Select the “Write Checks” icon from the home page. Select the tenant as the payee but you don’t need to enter the check amount. QuickBooks will calculate it as you enter the amount of the deposit and refund.


Note that you have selected “Deposits” from the “Items” tab and “Accounts Receivable” from the “Expenses” tab. Also, note that the amount on the expenses tab is a NEGATIVE amount because it is both a deduction in the amount of the check and in the receivable from the tenant. We selected deposits from the "items" tab to reverse the entry for the original deposit made using this item on a sales receipt. While we do not need to use the "Deposits" item method to record the deposit refund, it is consistent with the way we recorded the original deposit and, therefore, easier to remember.


If we print our check the check stub will show the deduction for cleaning.

Step 4 - Because we have paid the invoice we created, we need to clear the deduction on the check above against the invoice in our “Open Invoices” report. From the QuickBooks menu select, “Reports/Customers & Receivables/Open Invoices”. You can now see the original invoice and the negative amount resulting from our deduction on the deposit refund check. Select the “Invoice” line and double click to open the invoice.


Step 5 - Click the “Apply Credit” icon.


Step 6 - Check the applicable credit and click the “Done” icon to apply the credit against the invoice.


Your invoice will now say paid and both the invoice and credit will disappear from the “Open Invoices” report.


The Easy Way

Step 1 When you enter the cleaning bill select the tenant from the customer menu but DON'T check the billable checkbox.


Step 2 - When you cut the deposit refund check, instead of selecting “Accounts Receivable” select the “Cleaning Services” account you selected when you entered the cleaning bill. Remember to enter a negative amount because this is a deduction from the refund check and a reduction in the cleaning expense account.


The net result is the same but the easier method took only two steps while the hard method took six steps. In both cases the check stub would have shown the deduction for cleaning expense. I'm not saying the complicated way is incorrect. In some cases you may need to send an invoice to the "tenant". However, if you don't need an invoice, I recommend the easy way.

Robert Guild is Advanced Certified QuickBooks ProAdvisor in Austin, TX who conducts CPE courses for CPAs and individual training and group classes to QuickBooks users. His company at www.QBCoach.biz, maintains a sixteen-station QuickBooks lab, providing hands-on training. You can contact him directly at rguild@QBCoach.biz or follow him on twitter at QBPro