Is it possible to add an expense as a credit onto a customers sales invoice and it gets allocated to an expense account. Can the HST be accounted for properly?

Hello @jryksen ,

Yes, you can deduct an expense item from an invoice.  You just have to create the item that will be used in the invoice form and ensure it is connected to the appropriate expense or COGS account.  When you apply the expense line in the sales/invoice form, use a negative in the QTY column, and also use the appropriate tax codes.

The net amount of the invoice will be the amount you want to collect from your customer, the sales amount will be the amount you charged for your goods/services, and the expense/COGS amount will be the parts you are purchasing from your customer.

Although it is entirely possible to do this, it is not always the best practice.  For one thing, your list of customers and suppliers are completely different lists.  Doing this will render the purchase you made from your customer to that customer name, rather than to a supplier name.  This doesn't exactly provide the type of transparency that is required by accounting standards; not to mention that in future if you are ever trying to search out this transaction, you will  have to remember that you actually bought goods from a customer and not a supplier.

I'm a firm believer in using the proper forms for each transaction.  This ensures an accurate audit trail of the transactions involved.  e.g. You provide a customer invoice to your customer for the full amount of the sale.  The customer provides you an invoice, which you will enter as a supplier bill in your system, for the full amount you are purchasing from your customer (also vendor).  This requires you to create two records for this business, one customer and one supplier, and the name will have to appended slightly as they cannot be exactly the same and exist in both lists.

When you receive the net difference in payment from your customer, you can follow this procedure to ensure both the A/R and the A/P records are cleared.

1. Open your bank account ledger in the chart of accounts.
2. In the dropdown at the top left of the ledger, select Add Deposit.
3. Initially, enter the customer name, enter the account as Accounts Receivable (A/R).  Enter the total amount of the customer invoice and save the record.
4. Now select the record you just made and click on Edit.  The Bank Deposit form will open.
5. Add a second line to the deposit.
6. Enter your Vendor name.  Enter Accounts Payable (A/P) to the account field.
7. Tab over to the amount and enter the negative amount of bill you received from this vendor.
8. The total of the Bank Deposit should be the net difference between your customer invoice and the vendor bill.
9. Now go to bill payments.
10. Select the vendor bill for this transaction.
11. Go down into the Credits section of the Bill Payment.  Select the Deposit item created in the previous steps for the same amount as your bill.  Save and close.  This applies the negative line in the deposit form to your outstanding vendor invoice and clears it from A/P.  Your negative deposit was the equivalent of a bill payment.
12. Repeat the same as previous step but go to Receive Payment rather than Bill Payment.  Select the Deposit item created in the previous steps for the same amount as your customer invoice.  Save and close.  This applies the positive line in your bank deposit to your outstanding customer invoice and clears it from A/R.

You now have accomplished everything that needed to happen, but with a proper audit trail.  You have:

1. Recorded the initial sale to your customer (using a customer invoice).
2. Recorded the items you purchased from this business to their vendor name (using a supplier bill).
3. Received net payment between the two from your customer.
4. Recorded the net bank deposit.
5. Recorded and applied the full payment from the customer.
6. Recorded and applied the full payment to the vendor.

Hope that helps.  Good luck!