If you have Customers who are also Vendors you may decide to trade or barter your products and/or services in exchange for payment.
Accounting for bartering transactions is required by the IRS. Barter dollars are identical to real dollars for tax reporting purposes.
The requirement to report barter payments to Vendors on Form 1099 only applies to payments made in the course of a trade of business.
Nevertheless, even if no Forms 1099 are filed, bartering is generally taxable to the extent of the fair market value of the products and/or services exchanged.
First, check to see if this account and payment item have already been set up in your QuickBooks® file.
Go to Lists, Chart of Accounts and look for an account named Barter Bank or Barter Exchange. Go to Lists, Customer & Vendor Profile Lists, Payment Method List and look for a method called Barter/Trade. If these are already on your lists, you can skip both Step 1 and Step 2.
Step 1: Create a Clearing Account for tracking Barters
This is a one-time setup task.
- Go to the Lists menu and click Chart of Accounts
- Click Account at the bottom of the list and then click New
- Under Account Type choose Bank and then click Continue
- If you are using account numbers, enter the number in the Numbers field
- In the Account Name field, enter Barter Bank
- Click Save & Close
Step 2: Create a Payment Method for Barters
This is also a one-time setup task.
- Go to the Lists menu and click Customer & Vendor Profile Lists and then click Payment Method List
- Click Payment Method at the bottom of the list and then click New
- In the Payment Method field, enter Barter/Trade
- In Payment Type, select Other
- Click OK
Step 3: Pay the Vendor Bill
- In the Vendor Center, select Pay Bills
- Choose the Bill
- Change the Amount to Pay, if necessary, to the amount to barter
- At the bottom under Payment, choose Assign Check Number
- Under Account, select the Barter Bank account
- Choose Pay Selected Bill
- Under Check No. type the word “barter”
- Click OK
Note that you now have a negative balance in your Barter Bank account equal to the amount of the bill paid with barter dollars.
Step 4: Receive the Customer Payment
- In the Customer Center, select Receive Payments
- Choose the Customer
- Enter the Amount to barter – the same amount as in Step 3
- Under Payment Method, choose Barter/Trade
- Select the Invoice to apply the payment to
- Click Save & Close
Step 5: Record the Deposit
- In the Customer Center, select Record Deposits
- Select the payment to deposit and click OK
- Change the Deposit To bank account to the Barter Bank account
- Click Save & Close
Now your Barter Bank account should show a zero balance as the two transactions have washed.
Properly recording barter transactions is essential to accurately representing your revenue and expenses. Treat barter income as you would any other business activity and remember to keep a paper trail.
This article of QuickBooks Tips and Tricks was based on the 2012 version of QuickBooks.