Have a customer that is also a vendor, The customer pays my invoice but deducts the amount for their vendor bill, How should this transaction be entered / accounted for?

You reconcile the clearing bank, which should always have a $0 balance, or you didn't do the Clearing or Barter process properly.

And there is no JE for the process where Names are involved. You already have Sales and Purchase data; there is no JE in addition. You use the proper functions, so that vendor name vs customer name is respected for the activity types of Purchases and Sales. A JE also bypasses your Cash vs Accrual basis reporting. You don't need more activity. You already have:

Sales, but the payment is "virtual" as bartered.

Purchases, but the payment is "virtual" as bartered.

And Clearing Bank = 0, as wash of the funds value, not real money traded.

I have the same issue -- my landlord is one of my clients, so I wanted to be able to deduct the rent from any invoices. Here is what I did:

1. I created a new, non-inventory, product called "Office Rent" and then created a new category called "Credit".
2. I checked the box: "I sell the product/service to my customers." (you have to check this to allow it to be added to invoices).
3. In the sales price, I used a negative number
4. In the Income Account selector, I used the expense account for Rent (use the account you would assign the expense to normally)
5. I checked the box: "I purchase this product/service from a vendor"
6. I entered the actual cost 
7. I associated it with the proper expense account (in my case, Rent)
8. I assigned the prefered vendor

This works! My expense still tracks to my expenses in my reporting. 
I have attached a screenshot of my setup...

Online or Desktop I often run into an Employee that is also a vendor for Expense check purposes.

In Employee file = Ann Drake

In Vendor file       = Ms. Ann Drake

Works and keeps you on track,  Even in reports when you see the Ms or Mr you know it is an expense not  related to payroll.

The customer and vendor issue happens when you need to refund (not electronically) to the customer.   Same act.   Customer file = Big Dog Toys    

                                          Vendor file     = The Big Dog toys

9 times out of 10 this works, sometimes you get a bank that will not accept the check because it is not the correct business name.   In that case you put "the" on the Customer file and leave it off the Vendor file.

Leilani Griffiths

Extraordinary Bookkeeping Services

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There's another way on how you can do apply credit, Simplicity500.

Ideally, you can turn on the Automatically apply bill payments option to automatically apply the credit to your bill so it will apply to the correct open bills.

Here's how:

1. Click the Gear icon at the upper right corner.
2. Under Your Company, click Account and Settings.
3. Go to the Advanced tab in the left panel.
4. Select Automation and put a checkmark for Automatically apply bill payments..
5. Click OK.
6. Click Done.

Once done, let's locate the credit to apply it to your bill. You can follow the steps below.

1. Click + New.
2. Select Pay bills or Pay bill.
3. Select a bill for your vendor from the list. You'll see the available credit with this vendor in the Credit Applied field.
4. Complete the rest of the fields like you normally do.

Please check this article for detailed steps. Apply Vendor Credit To A Bill

You'll want to add and match transactions after you've applied for the credit. Here's an article for the detailed steps. Categorize And Match Online Bank Transactions In QuickBooks Online.

Post a comment below if you need help from us.

Reference: https://www.softwarediscountcenter.com/quickbooks-help/2009/07/02/ask-the-quickbooks-specialists-how-to-use-a-clearing-account-when-you-have-a-customer-who-is-also-a-vendor/#:~:text=1.,bank%20account%20called%20Clearing%20Account.&text=3.,your%20customer%2Fvendor%20owes%20you.

Tags: QuickBooks, QuickBooks Enterprise, QuickBooks Point of Sale, QuickBooks POS