5.2 Vendor Credits, Purchase Orders & Recurring Transactions

Vendor Credits, Purchase Orders & Recurring Transactions

Quick Answer: Advanced vendor management in QuickBooks Online relies on three vital tools: Vendor Credits (posting transactions that debit Accounts Payable and credit expense or asset accounts for returns and allowances), Purchase Orders (non-posting procurement documents exclusive to QBO Plus and Advanced that track supplier orders without altering the general ledger until received on a Bill or Expense), and Recurring Transactions (automation templates categorized as Scheduled for hands-free generation, Reminder for variable amounts, or Unscheduled for memorized on-demand forms).

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Vendor Credits: Mechanics & Accounting

In the ordinary course of business, companies return defective merchandise, negotiate price allowances for damaged goods, or receive volume rebates from suppliers. In QuickBooks Online, these adjustments are executed using a Vendor Credit (+ New > Vendor credit).

[Return / Defect / Rebate from Supplier]
                   │
                   ▼
      [+ New > Vendor Credit Form]
                   │
     ┌─────────────┴─────────────┐
     ▼                           ▼
[Debit: Accounts Payable]   [Credit: Expense / Asset Account]
(Reduces Vendor Liability)   (Reverses Expense or Relieves Inventory)

Accounting Impact of a Vendor Credit

Unlike a customer Credit Memo (which reduces Accounts Receivable), a Vendor Credit affects the purchasing subledger:

• Debit: Accounts Payable (Reduces total liabilities on the Balance Sheet and decrements the vendor's balance).
• Credit: Original Expense Category, Cost of Goods Sold, or Inventory Asset (Reduces expenditures on the Profit & Loss or relieves capitalized assets).

Numerical Example: Merchandise Return

A plumbing contractor returns $750.00 of defective piping previously purchased on account:

• Form: Vendor Credit
• Payee: Apex Pipe Supply
• Category: Job Supplies Expense (or Inventory Asset if tracked item)
• Accounting Entry:
  • Debit: Accounts Payable — $750.00
  • Credit: Job Supplies Expense — $750.00

Applying Vendor Credits in the Pay Bills Workflow

Once saved, a Vendor Credit sits in Accounts Payable as an unapplied negative liability. It can be applied against open bills in two ways:

1. Manual Application via Pay Bills: In the Pay Bills screen (+ New > Pay Bills), selecting a bill for a vendor who holds open credits reveals a Credits Applied column. QBO displays the available credit balance, allowing the user to apply all or part of the $750.00 credit. If the vendor has an open bill of $1,000.00, applying the $750.00 credit results in a net cash payment of only $250.00.
2. Automatic Application Setting: Located in Gear icon > Account and Settings > Expenses > Bills and expenses > Automatically apply credits. When checked, QBO automatically applies existing vendor credits to the next open bill created for that vendor.

ProAdvisor Best Practice Warning: Automatic credit application can disrupt project-based accounting and grant tracking. If a vendor credit belongs to "Project Alpha" but QBO automatically applies it to a subsequent bill for "Project Beta," job costing reports for both projects become distorted. ProAdvisors generally recommend disabling Automatically apply credits for clients managing job costs or multi-location classes.

Handling Vendor Cash Refunds

If a vendor issues a refund check rather than trade credit (for example, if the business has no pending bills with that supplier):

1. Go to + New > Bank deposit.
2. In the Add funds to this deposit section, set the Received From field to the vendor, and set the Account field strictly to Accounts Payable.
3. Go to + New > Check (or + New > Expense). Create a $0.00 transaction linking the unapplied Vendor Credit to the newly created Bank Deposit in Accounts Payable to clear both balances out of the A/P subledger.

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Purchase Orders: Non-Posting Procurement (Plus & Advanced)

A Purchase Order (PO) is a commercial document issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services.

Subscription Threshold & Configuration

• Availability: Available exclusively in QuickBooks Online Plus and QuickBooks Online Advanced (not available in Simple Start or Essentials).
• Enabling POs: Navigate to Gear icon > Account and Settings > Expenses > Purchase orders and toggle Use purchase orders to ON. Users can configure custom fields, default email messages, and PO numbering sequences.

The Non-Posting Nature of Purchase Orders

The most heavily tested concept regarding Purchase Orders on the ProAdvisor certification exam is their non-posting status:

┌────────────────────────────────────────────────────────────────────────┐
│                     Purchase Order Status: NON-POSTING                 │
├────────────────────────────────────────────────────────────────────────┤
│ General Ledger Debits:  $0.00                                          │
│ General Ledger Credits: $0.00                                          │
│ Impact on Balance Sheet: NONE                                          │
│ Impact on Profit & Loss: NONE                                          │
│ Impact on Trial Balance: NONE                                          │
└────────────────────────────────────────────────────────────────────────┘

Saving a Purchase Order does not create a liability, does not expend cash, and does not record inventory assets or expenses. It is an internal tracking instrument representing an encumbrance or commercial commitment.

The Procurement Lifecycle: PO to Bill Conversion

[1. Create PO] ────► [2. Vendor Ships Goods] ────► [3. Receive on Bill/Expense] ────► [4. Settle via Pay Bills]
(+ New > PO)         (Goods & Bill Arrive)        (+ New > Bill -> Add PO)          (A/P Liability Relieved)
*Non-Posting*                                     *POSTING: Dr Asset / Cr A/P*      *POSTING: Dr A/P / Cr Cash*

Step-by-Step Receiving Process

1. Vendor Shipment Arrives: The warehouse receives 100 widgets along with the supplier's formal invoice.
2. Open Transaction Form: The user clicks + New > Bill (or Expense) and selects the vendor.
3. The Drawer Appears: Upon selecting the vendor, QuickBooks Online automatically opens a slide-out drawer on the right side of the screen displaying all Open Purchase Orders for that supplier.
4. Add PO Lines: The user clicks Add on the PO tile. QBO immediately populates the transaction line items, quantities, unit costs, descriptions, and customer job mappings from the PO onto the Bill.
5. Save & Post: Once saved, the Bill executes the official general ledger entry (debiting Inventory Asset or Expense, crediting Accounts Payable). The Purchase Order status automatically transitions from Open to Closed.

Partial Receipts Workflow

Real-world procurement frequently involves backorders and split shipments:

• Suppose a PO was created for 100 units @ $50.00 ($5,000.00 total).
• The vendor ships 40 units today, with 60 units backordered.
• In the Bill, after clicking Add from the drawer, the user changes the quantity from 100 to 40.
• The Bill saves for $2,000.00 (debiting Inventory Asset $2,000.00, crediting Accounts Payable $2,000.00).
• PO Status: The original Purchase Order remains in Open status with a remaining open balance of 60 units.
• When the remaining 60 units arrive, creating a second Bill and selecting the vendor will display the same PO in the drawer with the remaining 60 units ready to add.
• Manually Closing a PO: If the vendor notifies the company that the remaining 60 units will never ship, the user can open the original PO and change the status drop-down to Closed (or check the Closed box on specific lines) to remove it from active procurement reporting.

Purchase Order Reports

• Open Purchase Order List: Displays all unfilled purchase commitments grouped by vendor.
• Purchases by Product/Service Detail: Analyzes purchasing volume across inventory and service items.

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Recurring Transactions: The QBO Automation Engine

To eliminate repetitive manual data entry, QuickBooks Online includes a robust templating engine accessed via Gear icon > Lists > Recurring Transactions.

┌────────────────────────────────────────────────────────────────────────┐
│                     The Three Recurring Template Models                │
├──────────────┬──────────────────┬─────────────────┬────────────────────┤
│ Model Type   │ System Behavior  │ Trigger / Date  │ Best Use Cases     │
├──────────────┼──────────────────┼─────────────────┼────────────────────┤
│ **Scheduled**│ Fully automated; │ Calendar rule   │ Fixed rent, SaaS   │
│              │ creates & posts  │ (e.g., 1st of   │ subscriptions,     │
│              │ without user     │ month; X days in│ vehicle leases,    │
│              │ intervention     │ advance)        │ loan amortizations │
├──────────────┼──────────────────┼─────────────────┼────────────────────┤
│ **Reminder** │ Prompts user via │ Dashboard &     │ Utility bills,     │
│              │ Dashboard task;  │ task list       │ credit card payments│
│              │ requires manual  │ notification    │ where amounts vary │
│              │ approval         │                 │ each billing cycle │
├──────────────┼──────────────────┼─────────────────┼────────────────────┤
│ **Unscheduled│ Reusable master  │ Manual user     │ Complex payroll JEs│
│              │ template; no     │ invocation      │ quarterly accruals,│
│              │ automated prompt │ (Action > Use)  │ seasonal orders    │
└──────────────┴──────────────────┴─────────────────┴────────────────────┘

1. Scheduled Templates

• Operational Mechanism: QBO automatically generates and posts the transaction on the scheduled calendar frequency without any user action.
• Lead Time Generation ("Create [X] days in advance"): A critical setting allowing the system to create the transaction before its due date. For instance, creating a Bill 10 days in advance ensures it appears on upcoming cash flow forecasts and A/P reports before the due date.
• Supported Forms: Bills, Expenses, Checks, Journal Entries, Invoices, Sales Receipts.
• Ideal Application: Fixed monthly rent ($3,500.00 due on the 1st), insurance premiums, software subscriptions.

2. Reminder Templates

• Operational Mechanism: QBO does not post the transaction automatically. Instead, it adds a prompt to the Tasks list and dashboard reminders [X] days prior to the transaction date.
• User Action: Clicking the reminder opens the pre-filled form. The user reviews the lines, updates the variable amounts (e.g., this month's electric bill amount), and clicks Save.
• Ideal Application: Monthly electric, water, or telephone bills where the vendor, payment terms, and expense accounts remain identical, but the dollar amount fluctuates based on monthly usage.

3. Unscheduled Templates

• Operational Mechanism: Possesses no schedule, calendar frequency, or dashboard reminders. It exists solely as a memorized template in the Recurring Transactions list.
• User Action: To deploy the template, the user navigates to Gear icon > Recurring Transactions, locates the template, and selects Use from the Action drop-down menu.
• Ideal Application: Complex, multi-line transactions with intricate account distributions that occur irregularly—such as bi-weekly payroll allocation journal entries, quarterly tax accruals, or standardized project asset purchases.

Essential Editing & Maintenance Rules

• Template vs. Instance Edits: Editing a master recurring template updates all future transactions generated from that template. It has zero retroactive effect on transactions already created and posted. Conversely, editing an individual generated transaction instance modifies only that specific record, leaving the master template unchanged.
• Pausing Templates: If a service is temporarily suspended, users should select Pause from the template's Action drop-down rather than deleting it. Pausing stops automated generation while preserving template configurations for future resumption.