When creating a journal involving Accounts Receivable (AR) and Accounts Payable account, or two Accounts Receivable accounts or two Accounts Payable accounts, a warning message “You cannot use more than one A/R or A/P account in the same transaction” will prompted on the screen and not allowing you to save the transaction.
This is one of the most common issues a user face when trying to contra between Suppliers and Customers, between Suppliers or between Customers.
If you want to contra between Accounts Receivable and Accounts Payable, more than one Accounts Receivable accounts, or more than one Accounts Payable account; you have to do it in two separate journals. Usually, I will use a Contra account to resolve it.
ABC (Customer) owes you $100, and you owe DEF (Supplier) $100. Supplier DEF wanted you to use the $100 which you owe them to pay on their behalf to ABC. You need to transfer the Accounts Payable, amount owing to DEF, to ABC account. So, how to do it?
Since QuickBooks does not allow having Accounts Receivable and Account Payable in one General Journal transaction, that is, debiting Accounts Payable $100 and crediting Accounts Receivable $100. You have to break it out into two General Journal transactions.
Usually, I prefer to create a dummy account, Bank account type, and I named it as Contra account. Next, I will do the two journals. First journal will be debiting Accounts Payable $100 and crediting Contra account $100. Second journal will be debiting Contra account $100 and crediting Accounts Receivable $100.
In this case, the Contra account will be zero off and will not show in the Balance Sheet report. However, you have to do a Receive Payment to knock off the Outstanding Invoice with the Credit balance (Journal) so it will not show as an outstanding amount in AR Ageing report. As for Accounts Payable, you have to do a Pay Bill to offset the Bill with the debit journal too.
The above method does resolving the issue for contra between Accounts Receivable and Accounts Payable, but I prefer to use direct payment method to contra between Accounts Receivable and Accounts Payable in QuickBooks.
Same as the above Journal method, I create a Contra account, Bank account type, then, I do a Pay Bill to supplier DEF. In the Pay Bill screen, instead of selecting your normal bank account for payment, I use Contra account. Enter the $100 bill payment as per normal. Next, I will do a Receive Payment of $100 from Customer ABC into the contra bank account.
In this way, I cut down the two general journals, and result is the same as the general journal method, that is, zero off Accounts Payable, Contra account and Accounts Receivable account.