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Handling Trade Accounts In QuickBooks

Handling Trade Accounts In QuickBooks

| 2 min read

It's not uncommon for a small business to trade goods or services in lieu of cash.  From what I've seen, it usually happens in the early stage of a business since cash flow is tight.  As the business grows and evolves the business owner may shy away from this practice since it can royally mess up the books if it's not properly recorded in QuickBooks.  Sloppy books could lead to an IRS audit, and not properly recording trades can lead to this.  Depending on the frequency of trades, there are a few different ways to record this.  The cleanest way is to set up a Pass Through Account on your Chart of Accounts, and this method will provide the most detail in QuickBooks so it will always be easy to reference the transaction.  There are a few other ways to handle trades, but you will lose some of the details and tracking them down may be a little bit harder as time goes by.  But it may not make sense to set up an elaborate system if a trade only happens once in a blue moon.


As mentioned above, it makes the most sense to set up a new account within your Chart Of Accounts if trading services and products is a common occurrence in your business.  Set up a bank account and name it Trade/Pass Through Account.  This will allow you to properly create invoices for the customer you are trading with.  In addition to invoices, you will be able to enter bills against the vendors account.  When the trade happens, you can 'pay' the bill out of the Trade/Pass Through Account by simply choosing that bank account from the Bill Pay screen.  The next step is to 'receive' payment from the vendor/customer you are trading with.  Go through the normal process of receiving payment, but make sure to 'deposit' the payment into the Trade/Pass Through account.  If done properly, the register for the Trade/Pass Through account should be zero.  Confirm this by getting into the account register.  The register will still be zero but it will show the two offsetting transactions in there.  Once verified, reconcile it and move on.  To summarize, here is a quick checklist for setting up a system for handling trades in QuickBooks;

  • Create a new bank account call Trade/Pass Through Account

  • Enter bills and create invoices per the usual

  • Pay bills out of the new account

  • Receive payments against the invoice and deposit the payment into the new account

  • Verify these transactions by viewing the new account's register

  • Reconcile the new account once verified

Now, a business owner or manager may not want to deal with all these steps if it only happens once and a while.  If the invoice is entered and the bill is not, then it's easiest if the payment is received in QuickBooks and the trade is entered at the Make Deposits screen.  While in the Make Deposits screen, add a second line and enter the name of the person you are trading with, expense account that is offsetting the income, and a negative amount to zero out the payment.  

 

If both the bill and invoice are entered into QuickBooks, then the above steps may not work.  It would be easiest to pay the bill as if a real check is going to be issued and to receive payment against the invoice as if you are really taking money to the bank for a deposit.  Once the bill and invoice are paid, go to the main bank account's register and you will see the two transactions off setting each other.  Make sure to make a mental note of this since it might get confusing come reconciliation time.

 

Save yourself the headache and set up the bookkeeping system for handling trades in QuickBooks before it spirals out of control.  As a bookkeeper, I've seen trade accounts almost ruin a small business's books.  Avoid the disaster that could unravel by getting it set up right the first time.  Don't hesitate to reach out if more explanation is needed.

 

 

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