Contra Invoices

Others will tell you how to do that. I would suggest you not offset anything. Make an invoice for your goods/services and have him issue a cheque to pay for it and you do the same.

It will be much easier to follow and search individual transactions.

That is one way to do it.

An alternative is to create a "clearing account" (type is bank) to use instead of the normal bank account. Create your invoice/bill as usual for both sides of the transaction but use this account to Pay bills and receive payments into to clear the invoices.

First, make sure that you have two entries for them, one in the vendor list, and one in the customer list.

You can use different entry methods to get what you need - journal entries, credit memos, vendor credits, or combinations. A look in the QB help file under 'barter' would yield some information, but I'll give you the method I finally settled on.

Create an account in the accounts list called 'barter'. For simplicity I made it a bank account. Create an item in the item list that is associated with that account, make sure it is non-taxable. Give it a description, such as 'Credit to customer for vendor services recieved.'

The customer invoices and vendor bills are entered as usual.

When it comes time to pay the vendor look at the vendor balance due, and the customer balance owed. Write down the smaller amount.

Create a credit memo for customer, using the item you created for barter. Copy the item description to the memo line - it really does make statements easier to read.

Create a vendor credit {using the enter bills screen} for the same amount, using the barter account. Again, put a memo in for clarity.

At this point, you should have a barter account balance of zero - and credits in both the vendor and customer accounts. Use the 'pay bills' screen to apply the vendor credit to the vendor bills. Use the 'recieve payments' screen to apply the customer credit to the open invoice(s).

I chose to use credit memos and vendor credit entries rather than journal entries, because of the nature of QuickBooks reporting. I found customer and vendor balance detail reports easier to understand when using credit memos/vendor credits than when I used journal entries. I also was able to give the customer a copy of the credit memo, so they would have a record for their own use.

True there would be a paper trail however the offset guarantees timely payment.