Recording a Customer Cash Payment When Part Goes to a Vendor

A QuickBooks Pro user handling a common small-business scenario — receiving a cash payment from a customer, using part of it to pay a vendor, and depositing the remainder — found that their approach produced incomplete records. The customer was credited correctly and the check register showed the right deposit amount, but the vendor’s account showed no payment at all.

The Scenario

The business received a $750 cash payment from a customer. Of that amount, $150 was used on the spot to pay a vendor invoice, and the remaining $600 was deposited into the checking account. The goal was straightforward: credit the customer for the full $750, record the $150 vendor payment, and end up with a single $600 deposit line in the check register.

The Attempted Approach

The user tried to accomplish this in a single deposit entry using a split. They created a deposit with two lines: the first line for $750 with the customer in the “Received From” field and Undeposited Funds as the source account, and a second line for negative $150 with the vendor in the “Received From” field and Repairs and Maintenance as the account.

The result was partially correct. The customer’s account showed the proper $750 credit, and the check register reflected the intended $600 net deposit. However, the $150 payment did not appear anywhere on the vendor’s account, leaving that side of the transaction unrecorded.

Why the Split Deposit Falls Short

The core problem is that a negative line on a bank deposit is not the same as paying a vendor bill. QuickBooks deposits are designed to move money into a bank account — they are not built to settle accounts payable. Even when the vendor’s name appears in the “Received From” field on that negative line, the system does not treat it as a bill payment. The vendor’s outstanding invoice remains open, and the payment history shows nothing.

This means the workaround creates a cosmetic fix in the check register while leaving the vendor side of the books inaccurate. For businesses tracking accounts payable, that is a meaningful gap.

The Accepted Solution: Use a Cash Account

The formally accepted answer in the community thread recommends creating a dedicated cash on hand account — a bank-type account in the chart of accounts, named something like “Cash” — and routing all three legs of the transaction through it.

The process works in three steps. First, record the full $750 customer payment and deposit it into the Cash account rather than directly into checking. This credits the customer properly and puts the money into a holding account. Second, pay the vendor’s invoice normally, selecting the Cash account as the payment method rather than writing a check from the main checking account. This applies the $150 to the vendor’s open invoice and reduces the cash balance in the Cash account. Third, transfer the remaining $600 from the Cash account to the checking account, which produces the single deposit line in the check register.

The advantage of this method is that it mirrors what physically happened. Cash came in, some went out to a vendor, and the rest went to the bank. Each leg is recorded independently and accurately, and every account — customer, vendor, and checking — reflects the correct amounts.

An Alternative View: Direct Journal-Style Entry

A supporting answer in the same thread took a different angle, arguing that a generic cash account can be too vague for maintaining accurate records. That respondent described the transaction in accounting terms: the customer’s payment reduces accounts receivable by the full $750, the bank deposit increases the checking account by $600, and the $150 handed to the vendor reduces accounts payable. The emphasis was on making sure each side of the entry lands in the right account, following the actual flow of cash from the customer through to the vendor and the bank.

Both approaches agree on the fundamental point: the vendor payment must be recorded as a distinct transaction against accounts payable, not buried as a negative line on a deposit slip. Where they differ is on the mechanics — whether to use an intermediary cash account or to handle the accounts payable reduction more directly.

The Takeaway

For QuickBooks Pro users who occasionally pass cash through from a customer to a vendor, the cash-account method provides a clean, auditable trail. It avoids the temptation to force a single deposit entry to do work it was not designed for, and it keeps every account in the books accurate without manual cleanup afterward.