In QuickBooks Online, there are two primary transaction types accountants and bookkeepers use to keep a business’ accounting up-to-date. These two transaction types are “Sales” transactions and “Purchase” transactions. The difference between them is simple to understand, but fundamental to using QuickBooks Online properly. The simplest explanation is that we use sales transactions when money moves between the business and its customers. In contrast, we use Purchase transactions when money moves between the business and its vendors.
Customers and Vendors
Most people already understand what a customer is. On the other hand, many people do not yet understand what vendors are. A vendor is any person or company the business purchases products or services from. Here are a few quick examples of vendors:
- An online retail business uses GoDaddy to register a .com address and host a website for the business. GoDaddy is a vendor of the business.
- An architecture services business buys several office supplies from a local Staples store. The local Staples store is a vendor of the business.
- A business has a kiosk in a local mall where they sell unique jewelry. The business purchases some hand-made jewelry from a local artisan at a farmer’s market. The artisan at the farmer’s market is a vendor of the business.
If you weren’t sure what a vendor is before, hopefully the above examples help make it clear. We can briefly look at each of the several transaction types that are available from the “Quick Create” menu in QuickBooks Online. If you don’t know where the Quick Create menu is, see the below animation and screenshot.
Sales Transactions in QuickBooks Online
QuickBooks Online has the following types of transactions to record business activity with customers:
- Receive Payment
- Credit Memo
- Sales Receipt
- Refund Receipt
- Delayed Credit
- Delayed Charge
Invoices — Use the Invoice transaction to charge a customer for products or services you provide to them. Invoices are accrual-basis transactions, which means that the customer has not paid you yet. If you are a cash-basis business, invoice transactions will not show in sales reports until the customer makes a payment.
Receive Payment — Use the Receive Payment transaction to record when a customer pays an invoice. If you are a cash-basis business, the amounts you invoiced to the customer will show in sales reports after you post the transaction.
Estimate — Use the Estimate transaction to send an estimate of the cost of products and services to your customers. QuickBooks will not post the transaction to your books until you copy the estimate over to an invoice.
Credit Memo — Use a Credit Memo transaction to reduce the amount a customer still owes you on an invoice. Use Credit Memos when you accidentally overcharge a customer, or when you ship faulty product, etc. If the customer already paid the invoice, use a Refund Receipt instead.
Sales Receipt — Use a Sales Receipt when a customer purchases products or services. Use this transaction instead of an Invoice when the customer pays for the products or services as they buy them.
Refund Receipt — Use a Refund Receipt when you issue a refund to a customer. Use Refund Receipts to reverse Sales Receipts, or Invoices the customer already paid. To reverse balances on unpaid invoices, use a Credit Memo.
Delayed Credit — Use a Delayed Credit to set aside customer refunds to include on a future invoice.
Delayed Charge — Use a Delayed Charge to set aside customer charges to include on a future invoice.
Purchase Transactions in QuickBooks Online
QuickBooks has the following types of transactions to record business activity with vendors:
- Pay Bills
- Purchase Order
- Vendor Credit
- Credit Card Credit
Expense — Use the Expense transaction when you purchase products or services and immediately pay the vendor.
Check — Use the Check transaction when you purchase products or services and want to use the QuickBooks Online check printing feature to pay the vendor.
Bill — Use the Bill transaction when you receive a bill from a vendor for products or services you don’t immediately pay for.
Pay Bills — Use the Pay Bills transaction to record when you pay a vendor bill.
Purchase Order — Use the Purchase Order transaction to create a purchase order to send to a vendor. You can easily transfer Purchase Orders to a Bill.
Vendor Credit — Use the Vendor Credit transaction to reduce the balance you owe a vendor on a bill. If all bills are paid and the vendor issues you a refund directly to your credit card, use the Credit Card Credit transaction. If the vendor issues you a refund directly to a checking or savings account, use the Bank Deposit transaction.
Credit Card Credit — Use the Credit Card Credit transaction when a vendor issues you a refund on your credit card.
The most important way to ensure you are using QuickBooks Online correctly is to understand the sales and purchase transactions and know when you should use each one. Even if you are not new to QuickBooks Online, I recommend reading through the articles for each transaction. Doing so will help you gain a better understanding about how each transaction is properly used and how they link to one another. By understanding these fundamentals, you will invariably learn or re-learn something new to help you become a better QuickBooks Online user.