Bills and Bill Payments Vs. Checks

By Kitty Morse // Senior Bookkeeper

Have you ever wondered why there are two different ways to pay your vendors in QuickBooks? We often see some confusion here – and no question, it is confusing! 

First, we need to understand what the two methods are meant to accomplish, then you can choose which works best for you. 
    • Entering a Bill then paying the Bill in QuickBooks is used for a couple of reasons. When you have terms with your vendor, e.g. you don't have to pay for 30 days, you may want to create a liability in Accounts Payable to track that. Or, you may have multiple bills at any one time with this vendor, and need to keep careful track of which ones are paid and unpaid. 
    • A Check is just one-and-done. 

 Accounting 101: Remember every transaction in any accounting system records at least one debit and one credit, which you can think of simply as increases and decreases. 

Here are the two different workflows, A and B: 

    1. Enter the Bill: Increase Expense and increase Accounts Payable 
    2. Pay the Bill: Decrease Accounts Payable and Decrease Cash 
      •    This clears the open A/P, and creates a transaction called a "Bill Payment". This looks a LOT like a regular Check, but is linked to - and closes out - the bills it's paying. 
You can enter the Bill and Bill Payment on the same day, or different days, as needed. Doing it this way allows you to keep track of each individual bill and whether or not it's paid. 
Note that your ACCRUAL basis profit and loss reports will show the expense on the BILL DATE, and your CASH basis reports will show the expense on the BILL PAYMENT date. 

    1. Write the check: Increase Expense and Decrease Cash 

This method ultimately accomplishes the same thing as Method A, just in one step (and on one date) instead of two. 
You can keep track of which bills this check is paying in the memo field, but you don't have the ability to see a specific bill as a separate transaction. 

Your ACCRUAL and CASH basis reports will look the same for this method.
A common error we see is that the bookkeeper will enter the Bill (A.1.) and then write the check (B.1.). This does a couple of things incorrectly:
    1. Your ACCRUAL books will show this expense twice, overstating your tax deductions.
    2. Your open Accounts Payable balance will sit there forever. 

Some questions to ask if you've done this: 
    1. Run your Accounts Payable Aging Summary report. Do you see lots of outstanding bills listed, that you know you have already paid?
    2. Look at those vendors in the Vendor Center. Do you see lots of Bills listed, then CHECKS (not Bill Payments) to pay those bills? 
    3. Run your profit and loss report and click the Accrual button. Do you have unexpectedly large expenses compared to your Cash basis reports? 

If you've found yourself with this error, contact us for help!  

Kitty Morse has spent 20+ years as CFO of a small family-owned manufacturing business. Prior to that, she was performing financial audits while at Ernst & Young and SEC reporting at The Walt Disney Company. Kitty brings a broad understanding of management needs, compassion for the bookkeeper's responsibilities, and a deep appreciation for accuracy to her work as a conversion and clean-up specialist.

Copyright KNKBS, 2022