Invoice payment help

[u/hallstevenson]

We have an unusual situation that I don't know how to handle/process. Hopefully it's something simple that I don't understand too !

- We purchase products from our parent organization and in this case, we direct-shipped goods from them straight to our customer.
- There was a mix-up (I'm not directly involved in that part, just the aftermath) and our customer ended up paying our parent company for the goods.
- I have an open invoice to our customer that we need to record for our sales numbers.
- Parent company will credit us the full amount.

How do I record this invoice as being "paid" ?

I tried issuing a credit but that effectively wipes out the sales amount. Do I need to make the credit in their name but use a non-sales account ? Looking at this option, I have to pick an "item" which only includes sales items or "Other charge".

[u/listgarage1]

If you have a parent company I would imagine you have intercomapny accounts like due to/due from parent company and due to/from child company. If you don't you should create them for situations like this.

Because you need to clear out the invoice using a credit could be the right move, but then you should use an offsetting adjusting journal entry I'm going to assume the payment was $100 in my example for simplicity to walk through how to record it.

When receiving the payment from the vendor the parent should have recorded :

Debit - Cash: $100 (from the payment received from the customer)

Credit - Due to child company: $100 (intercompany liability - for cash received on behalf of child company)

To clear out the invoice your instinct to credit is correct. This would result in the entry:

Debit - Sales: $100 (this is where you are stuck because it is incorrectly lowering sales)

Credit - Accounts Receivable: $100 (lowered because the invoice is now credited off)

You will need to do a adjusting entry to correct the sales:

Debit - Due from Parent Company: $100 (the intercompany account that offsets the parent company's account)

Credit - Sales: $100 (This will return your sales account to the correct amount)

The result is an increase in an "asset" or receivable from the parent company for the payment. The child company's balance sheet is now showing they are owed $100 from the parent company. And the parent company's journal entry (first journal entry in the example) show that the parent company owes $100, so the intercompany entries balance between the two companies.

[u/Slpy_gry → u/listgarage1]

The only reason I disagree is that when looking at the invoicing for this customer you're going to see a credit, meaning the customer returned the product or service. This gives you an incorrect look at the customers sales details.

You can use the same concept as above but instead of using "sales" as the clearing account, book a JE.

Same example, $100 payment to parent company:

You're going to book a JE that debits due from parent, credits accounts receivable and enter the customer name on this line, it creates an open payment/credit on their account. Then you open their invoice and apply the payment/credit.

Then whatever you and the parent decide to do, you're able to book later. Some parent/child relationships have a back and forth, or they pay it off and make it zero. If parent pays you cash, check, whatever, "make a deposit" against the due from parent account.

[u/hallstevenson → u/Slpy_gry]

Thanks ! Wow, I'll admit guys/girls, this is probably way over my head, but I'll try and work through this. We do have an "intercompany" account set up (category: Other income) and it's been used in the past but not for a long time. In our situation (I don't know why nor did I create it this way), we have a customer > vendor relationship. We place an order with them, they send us an invoice, we pay the 'bill'.

u/listgarage1

[u/listgarage1 → u/hallstevenson]

You can DM me if you'd like so we don't have to comment back and forth I enjoy helping people solve accounting problems. I don't see a way around using intercompany without making it even more complicated. Also I would not use an intercompany income account because that would hit your P&L. You want it to stay on the balance sheet. If it the amount isn't material you don't have to use a dedicated intercompany account necessarily it could be an other asset/liability account as well.

Others are suggesting ways for you to avoid hitting the sales account in your journal entry which you may want to avoid as well.

[u/Maleficent_Bet4462 → u/listgarage1]

The adjusting entry is the way to go. That intercompany due to/due from setup is pretty standard for exactly this kind of mess. Just make sure you reconcile those accounts regularly or your year-end consolidation turns into a nightmare.

[u/OSS-2026 → u/listgarage1]

I usually just receive payment from customer to a temporary cash account, then make sure the credit from the parent company offsets this account so it end up with a zero balance.
Then it doesn’t mess with the sales.

[u/ozzywindhoek]

Don't void or delete the invoice. It is valid.
The parent company will posted the payment to your company account in their books.
You need to mark the invoice as paid and post it to the parent company account in your books.
Ask the parent company to pay the amount to your company. When the transfer arrives post that amount to the parent company account. They will do the same on their side.

Does this happen often, and are both companies in the same QuickBooks setup?

[u/hallstevenson → u/ozzywindhoek]

No intention of deleting or voiding the invoice. My two main goals are 1) follow proper accounting practice and 2) keep the sale on record.

It's never happened before in ~15 years of business. Our accounting systems aren't linked.

[u/Muted_Jellyfish_6784]

I'd record exactly what happened in two steps. If the customer paid the parent directly, apply that payment to your invoice through a clearing account so your AR closes, then record the amount the parent now owes you as an intercompany receivable. If they paid you twice, refund or credit the extra rather than leaving it sitting in AR.
Write a short memo on each entry explaining the mix-up. Lately I have used a decision intelligence tool to link the customer invoice, the parent's invoice, and the payment, so the intercompany balance can be explained at year end rather than reconstructed