Sometimes, you may exchange goods or services with a customer or vendor, rather than paying for an entire bill or invoice outright. These situations can get complicated from an accounting perspective, so this article will walk through options to record these transactions while still recognizing the full expense / income amounts.
To do this, you'll first create a trade / barter account, then record the transactions. There is a video in each section to walk through the steps, or you can follow the written instructions.
Setting up a trade / barter account
To keep track of the value of these transactions and mark bills and invoices “paid”, even when money may not be changing hands, you can set up a Trade account on your Balance Sheet. There are two options for this depending on how granular you want to be.
Follow along with the steps below, or watch this video:
Option 1: General Trade / Barter Account
If you don’t care about tracking the amount owed to you by each person or business you trade with, or you trade very infrequently, a general Trade / Barter account is the simplest option. To set it up:
Go to the Accounts page in Ambrook
Click “New Account” in the upper right hand corner of the screen.
Choose the account type as “Other Current Asset”
Name the account “Trade Clearing Account” or something similar that will help you remember that this is the account you use to track your trades.
Set the starting balance to $0.
Set the start date as the date you started your books in Ambrook.
Save the account.
Continue to the section of this article on recording trades.
Option 2: Trade Accounts for Each Entity You Trade With
If you trade with multiple people or businesses and you want to keep track of how much each of them owe you, or how much you owe them, at any given time, you can create separate trade accounts for each entity you trade with.
To set up these accounts:
Go to the Accounts page in Ambrook
Click “New Account” in the upper right hand corner of the screen.
Choose the account type as “Other Current Asset”
Name the account “Trade Account: John Doe” or something similar that will help you remember that this is the account you use to track your trade balance with this person or business.
Set the starting balance to $0.
Set the start date as the date you started your books in Ambrook.
Save the account.
Repeat as many times as needed to create an account for each entity you want to track your trade balance with.
Continue to the section of this article on recording trades.
Recording a trade of goods or services
In this video, Katie will walk through how to record a trade transaction in two different scenarios. You can also follow the written steps below. Make sure you have your trade account set up from part 1 before moving on to recording the transactions.
Example 1: You paid for someone else’s portion of an expense, and they repay you with a trade.
In this scenario, there is an expense transaction on your Ledger for an expense you paid for. Part or all of this expense is something you paid for on behalf of someone else, and they now owe you money for this amount. However, instead of repaying you monetarily, you receive some goods or services in exchange.
For example, you buy your neighbor’s seed along with yours for $1,000. Your expense is $500, and they owe you for the other $500. Rather than giving you cash, they reduce the amount you owe them for your $1,500 custom work bill.
Here are the steps to record this scenario.
Categorize the initial expense transaction
Break the expense transaction on the Ledger into line items.
Click the three dots on the right of the transaction on the Ledger.
Click “Add Line Items”.
Add one line item for the amount of the expense that was yours.
Add one line item for the amount of the expense that is theirs.
Save the line items.
Categorize your portion of the expense as an expense category.
Click the category button on your expense line item and choose the appropriate expense category, e.g. Seed Expense.
This expense will now show on your Profit & Loss.
Categorize their portion of the expense as an “Asset Adjustment”.
Click Category -> Asset Adjustment
Choose the Trade account as the Asset Account to adjust.
The trade account will now represent that they owe you $500. You can view it by going to the Accounts page, under the Assets section.
Create and record payment on the bill
Go to the Bills page
Create a bill for the goods or services the other party is providing to you.
Click “+ New Bill”
Add the other party as the vendor.
Fill out the bill for the full amount you owe them for the goods or services.
Categorize the goods and services as whatever expense category matches them.
In the above example, it would be a $1,500 bill categorized as “Custom Work Expense”.
Save the bill as “Open”
Click the plus “+” button next to the Match Payment button on the bill.
Record a new “Transaction” on the bill.
Choose the Trade account as the account to record the transaction.
Enter the amount of the credit you have from the purchase you made on their behalf ($500 for paying for their portion of the seed bill).
Enter a description of what the credit was for to make it easier to remember in the future (e.g. “Trade for paying for Brown seed in November”).
Click Save. This will decrease the balance of the Trade account, and decrease the amount you owe on the bill.
If you still owe money on the bill that you plan to pay monetarily, you can click Match Payment on the bill to match it to a check or other payment from your bank account on the Ledger that will mark the bill fully paid.
Example 2: Someone is providing you a good/service, and you are providing them with a good/service in exchange.
In this scenario, someone you work with owes you money for some goods or services, and you owe them money for some goods or services. You want to have a bill and an invoice to fully represent both that expense and income, but you actually are trading some amount of goods/services rather than actually exchanging the full monetary amounts.
For example, you buy $1,000 of hay from your neighbor, and then you do $500 of custom work for them. Rather than you paying them $1,000 and then them paying you $500, you just pay them $500.
Here are the steps to record this scenario, while still having a bill and invoice showing the full amounts of each. You can record the bill or the invoice first, depending on what makes sense in your situation, but you will need to create one of each.
Create the bill representing your expense
Go to the Bills page
Create a bill for the goods or services the other party is providing to you.
Click “+ New Bill”
Add the other party as the vendor.
Fill out the bill for the full amount you owe them for the goods or services.
Categorize the goods and services as whatever expense category matches them.
In the above example, it would be a $1,000 bill categorized as hay expense.
Save the bill as “Open”
Click the plus “+” button next to the Match Payment button on the bill.
Record a new “Transaction”.
Choose the Trade account as the account to record the transaction.
Enter the amount that will be accounted for with the trade. In this example, it would be $500.
Enter a description of what the credit was for to make it easier to remember in the future (e.g. “Trade for doing custom work in November”).
Click Save. This will update the balance of the Trade account, and decrease the amount you owe on the bill.
If you still owe money on the bill that will be paid monetarily, you can click Match Payment on the bill/invoice to match it to a check or other payment from your bank account on the Ledger that will mark the bill fully paid.
Create the invoice representing your income
Go to the Invoices page
Create an invoice for the goods or services you’re providing the other party.
Click “+ New Invoice”
Add the other party as the customer.
Fill out the invoice for the full amount they owe you.
Categorize the goods and services as whatever income category matches them.
In the above example, it would be a $500 invoice categorized as custom hire income.
Save the invoice as “Open”
Click the plus “+” button next to the Match Payment button on the invoice.
Record a new “Transaction”.
Choose the Trade account as the account to record the transaction.
Enter the amount that will be accounted for with the trade. In this example, it would be $500.
Enter a description of what the credit was for to make it easier to remember in the future (e.g. “Trade for doing custom work in November”).
Click Save. This will update the balance of the Trade account, and decrease the amount your customer owes on the invoice.
If your customer still owes money on the invoice that will be paid monetarily, you can click Match Payment on the bill/invoice to match it to a check or other payment from your bank account on the Ledger that will mark the invoice fully paid.
Both the full expense amount and full income amount will then be represented on your profit & loss statement.