Difference between Vendor Bills, Expenses, and Checks

Learn about the differences between vendor bills, expenses, and checks in QuickBooks Online in this article.

We’ll go over how these transactions affect the various accounts in your books.

Generally speaking, bills should be used to record expenses that you’ll pay later, while expenses and checks should be used to record expenses and payments made right away.

Vendor Bill

The biggest difference between a bill and an expense or check is that a bill is generally used when you have an expense that you’ll pay later.

When you do pay the bill, you’d use Make payment button on the bill or Pay Bills feature in QuickBooks Online.

Why does this matter?

With bills, you can track open balances and amounts owed to vendors. These transactions are also tracked in your Accounts Payable account.

Various reports will also be affected if you’re on accrual accounting since accrual accounting counts money when it’s earned and billed, whereas cash accounting recognizes money when it is received and paid.

When running reports in QuickBooks Online, you can switch between cash and accrual accounting.

You might use a bill when you have a utility bill that is due at later in the month.

Or if you sell online, you may use bills when you pay half up front for inventory and the other half upon receipt.

Check

There isn’t much of a difference between a check and an expense in QuickBooks Online. Both a check and an expense will record the expense and payment immediately.

Use a check when you need to print the check or when you want to print it later with other checks.

Many businesses today have moved away from checks, but if you still use checks and need to print them, then use this document to pay your bills.

Vendor Expense

You’d use a vendor expense for the same reasons you’d use a check: to record expenses and payments immediately.

You might use an expense for office supplies at a Staples or Office Depot. Because you paid for the items on the spot, you wouldn’t need to use a bill and payment.

If you don’t use checks, then you can likely use a vendor expense for all of your expenses instead of having to worry about which document to use.

If you’ve paid with a credit card or electronic funds transfer (EFT), then use an expense to record the payment.

How do these transactions affect my accounting?

These transactions will primarily affect those using accrual accounting since this method of accounting considers revenue and expenses as they happen, not when the money exchange actually occurs (cash basis).

As a result, you’ll see a balance on your Accounts Payable account if you’re using bills.

These transactions will also affect the values in your reporting if you change the report from accrual to cash in QuickBooks Online.

Do any of these features affect inventory?

All three documents can be used to receive inventory. There’s no difference to how inventory is handled with these documents.

QuickBooks Online will automatically calculate the inventory-related accounts like Inventory Asset, Sales of Product Income, and Cost of Goods Sold.

You’ll want to make sure that the dates on the transactions are correct, as they will affect the profit reports and calculations in QuickBooks Online.

For instance, if you receive inventory on June 10 using a bill and a sale happens on June 9, QuickBooks Online will record the COGS at $0 or at the previous COGS calculated.

As a result, your reporting would have inaccurate profits. That’s why it’s important to keep the dates on the documents correct. Avoid guessing the date when it comes to expenses related to inventory.

Learn more about adjusting inventory in QuickBooks Online.

So there you have it! The next time you’re confused about which document to use, ask yourself this: have I already paid the bill?

If so, then use an expense document. Otherwise, create a bill and click on make payment or pay bills when you pay the balance. And if you’re still using checks to pay some bills, then use the check feature instead of an expense.

While these differences may seem minor, having proper bookkeeping practices will give you more details about your business and your cash flow, allowing you to make more informed decisions.

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