We will now go through the steps of adding a vendor to our database, entering a bill and making a payment against that bill when it becomes due:
- Prerequisites: Make sure you have an Accounts Payable account in your account hierarchy. Please see Chapter 1, Getting started with GnuCash for a tutorial on how to create an account. Typically, you will find this under Liabilities or under Current Liabilities. If you do not have one, go ahead and create a new Accounts Payable account. This should be of type A/Payable with Liabilities as the parent.
- You will find all of the modules for this tutorial under the menu Business | Vendor. Create a New Vendor.
- Create a new Bill and make the date of the bill of over a month ago with the payment due in 30 days. This will help you to process the payment right away (for the purposes of this tutorial), without having to wait for a month for the bill to become due. In the Edit Bill window, you can use the following values: 06/23/10, PC Kits, Expenses:PC Kits, 1, $349.50, $349.50.
- When you click Post you will get the confirmation dialog, Do you really want to post the invoice? Click on OK.
- Close GnuCash and restart it. Now that we have posted a bill from a month ago, and it is due in 30 days, the Due Bills Reminder dialog will pop-up when GnuCash restarts. You can also launch this from the menu Business | Due Bills Reminder as shown in the next screenshot:
As we saw earlier, if you are selling to business customers, they will expect you to provide trade credit. That requires a large cash outlay to keep your business running with adequate working capital. It is possible that you have what is popularly known as "deep pockets", which is another way of saying that you are the heir to a large fortune or you are the winner of the mega millions lottery. If you are none of the above, your very survival as a start-up business depends on your ability to negotiate good trade credit terms with your vendors. If you are one of the above, why are you messing with a start-up business anyway, instead of lounging around on a Caribbean beach?
Note
GnuCash refers to Customer Invoice and Vendor Bill. To keep them in sync and avoid confusion, we are following the same terminology. However, both are invoices. The term 'Invoice' is commonly used in business-to-business (B2B) transactions while 'Bill' is used in consumer transactions.
As we said earlier, your ability to find reliable, quality vendors, and negotiate good trade credit terms is where your business skills can shine. However, the not-so-glamorous bookkeeping plays an important part too. Unless you have the systems in place to keep track of to whom you owe payment, what the terms are, and when they become due, you won't be able to follow them up and pay in a timely manner. At best some of your vendors will withdraw any credit terms that they gave you. At worst, your business credit rating will take a hit. Any time a vendor runs a credit check, which they always do, and you should do too, all of that bad payment history will show up and severely impact your credit terms and cash flow.
Note
When you make payments against delivery to a vendor, it can be entered in the account register directly. However, payments made against invoices are special and GnuCash requires you to treat them with special care. This is because the matching bills have to be marked as paid. For this reason GnuCash provides a special module called Process Payment for this very purpose.
For quick reference, let us summarize the few ways in which the GnuCash A/P system differs from the A/R system:
- You don't have to create Billing Terms. This time we will let your vendor worry about that.
- The Due Bills Reminder is unique to the A/P system. We will see more about the due bills reminder in the next section.
The due bills reminder will only show you bills that are due within the "days in advance" setting in preferences. You can change this from the menu Edit | Preferences and select the Business tab. So if your setting is set to seven days, as shown in the next screenshot, it will only show bills due within seven days. A bill due within eight days will not show. If you have no bills due within that time then the dialog will not even appear as shown in the following screenshot:
Note
When a bill passes its reminder date, the Due Bills Reminder will pop up automatically as soon as you start GnuCash. As we saw in the chapter on scheduled transactions, the Since Last Run process will also pop up, when you start GnuCash, if there are any scheduled transactions that have to be brought to your attention. You can attend to them, one by one, or cancel or close them and get to them through the appropriate menu items at your convenience.
- You entered a bill and posted it by mistake. How will you rectify this error?
a. Unpost
b. Unpay
c. Unbill
d. Undo