ProAdvisor Prep: Level 2 — Expenses, Vendors & The Money Going Out

In our first Level 2 module, we dealt with customers, sales, and advanced billing—the part where money is theoretically supposed to come into the business.

Now we’re going the other direction.

Expenses and Vendors.

Because apparently businesses insist upon spending money too.

Rude.

And we have a special guest for this one.

Wallace and Gertrude remain your permanent Resistance Accountants faculty. Joining them today is Gladys, our Visiting Distinguished English Bulldog, whose accounting qualifications currently consist of being adorable and possessing a face that suggests she would enthusiastically approve any Purchase Order containing snacks.

She has no disciplinary authority.

Gertrude was very clear about that.

Level 2 Means More Moving Parts

Level 1 gave us the foundations: expenses, bills, vendors, and the basic mechanics of recording money going out.

Level 2 starts asking what happens when the business doesn’t fit neatly into the simplest workflow.

Maybe the company orders something before it receives it.

Maybe only half the order arrives.

Maybe the vendor is in another country.

Maybe the vendor owes us money.

Maybe contractors have entered the chat.

None of those situations is especially horrifying by itself.

The trouble starts when we treat them like they’re all the same transaction.

They’re not.

So throughout this module, keep asking:

What actually happened in the business?

And then:

What does QuickBooks need to record because of it?

Not:

Which button looks promising enough to click?

Gertrude is watching.

Gladys is just happy to be included.

Purchase Orders: We Intend to Buy This Shit

A Purchase Order, or PO, documents the business’s intention to buy specific products or services from a vendor.

That’s an important distinction.

The company hasn’t necessarily received anything yet.

It hasn’t necessarily paid anything yet.

It may not even owe anything yet.

The PO documents the order.

Current QuickBooks Online supports Purchase Orders in Plus and Advanced. Once the vendor accepts the PO and supplies the products or services, the PO can be connected to an Expense, Check, or Bill instead of recreating the purchase from scratch.

That’s the relationship I want you to understand:

Purchase Order → What we intend to buy

Later:

Bill / Expense / Check → What actually happened financially

Don’t memorize one sacred click path.

Understand why those transactions are connected.

Resistance Coffee & Books Needs More Shit

Our fictional business is expanding again because apparently nobody has taken away their purchasing privileges.

Resistance Coffee & Books orders:

• 20 new café chairs
• 10 small tables
• 4 industrial shelving units

They create a Purchase Order for the supplier.

At this point, we have documented an order.

We have not magically created an expense because somebody asked for twenty chairs.

Then the shipment arrives and the vendor sends a Bill.

Now something different has happened.

The business owes the vendor money.

The open PO can be connected to that Bill.

Now we’re preserving the relationship between:

what we ordered → what the vendor actually billed us for

That’s much more useful than having two unrelated transactions floating around the books wondering if they’ve ever met.

And No, That Alone Isn’t “Three-Way Matching”

This deserves its own little section because a couple of my actual readers caught it while reviewing an early draft of this module I gave them. Yes. I recruited minds other than my own who also look at this shit and say WTF from time to time. Thank you Taissa and Leonard!😇

Connecting a PO to a Bill is useful.

It is not, by itself, the entire concept of three-way matching.

Traditional three-way matching compares three things:

What did we order?

What did we actually receive?

What did the vendor bill us for?

Purchase Order.

Receiving information.

Vendor invoice or Bill.

QuickBooks can help connect records.

It cannot climb into the delivery truck and count your chairs.

The human still has to establish what actually arrived.

That distinction matters.

What If Only Half the Shit Shows Up?

Let’s say Resistance Coffee & Books ordered 20 chairs.

Only 12 arrive.

The remaining eight are backordered.

Do we delete the Purchase Order?

No.

Do we record all 20 as though they arrived because that’s what everybody hoped would happen?

Also no.

QuickBooks allows you to add part of an open PO to an Expense, Check, or Bill by adjusting the quantity or amount to reflect what was actually received or paid. Multiple transactions can link to the same PO, and QuickBooks closes it once all quantities have been added.

There’s our Level 2 concept:

The original order and reality do not have to match perfectly.

Record reality.

Accounting generally appreciates that.

Multicurrency: Because Apparently Vendors Can Live Elsewhere

Resistance Coffee & Books has found a gorgeous supplier in Italy.

Fantastic.

The invoice arrives in euros.

Also fantastic.

Our bookkeeping just acquired another moving part.

QuickBooks Online Essentials, Plus, and Advanced support Multicurrency. Once enabled, QuickBooks can record foreign-currency transactions and convert them to home-currency values for accounting and reporting.

But before you enthusiastically flip that switch:

STOP.

Once Multicurrency is enabled in QuickBooks Online, you cannot turn it back off.

This is not one of our:

“Click on shit and see what happens”

moments.

If you’re practicing, use an appropriate sample, demo, or training environment.

If you’re working in live client books, understand the consequence before changing a permanent setting.

Exchange Rates: QuickBooks Helps. You Still Have a Job to Do.

QuickBooks uses exchange rates to determine the home-currency value of foreign-currency transactions and to convert those transactions for reporting.

Current Intuit documentation says QuickBooks uses exchange-rate data from IHS Markit, and users can enter their own exchange rate when appropriate.

That’s useful automation.

It does not mean:

Foreign currency exists → QuickBooks handles everything → human may leave the building.

You still need to understand:

What currency belongs to the vendor?

What currency is this transaction using?

What date are we recording?

What exchange rate is being used?

Does the resulting transaction make sense?

Automation saves us from doing currency conversion on a cocktail napkin.

It doesn’t relieve us of understanding what the hell we’re recording.

Vendor Credits & Refunds: Everybody Come Closer

This was the part that confused nearly everybody who looked at the early material including myself.

And honestly?

Good.

Because if something feels confusing, that’s exactly where we should stop pretending a three-sentence explanation is sufficient.

Here’s the first thing I want you to remember:

A vendor credit and a vendor refund are related concepts, but they are not one universal workflow.

Current Intuit guidance says the method you use for a vendor refund depends on how the original purchase was recorded.

So we’re not memorizing one button sequence.

We’re building a decision process.

The Vendor Money-Back Decision Tree

Start here:

1. How did we record the original purchase?

Was it an Expense or Check?

Was it a Bill?

Was it charged to a credit card?

Then ask:

2. What is happening now?

Is the vendor giving us a credit to reduce what we owe?

Or did money actually come back?

Then:

3. Where did the value go?

Against another Bill?

Into the bank?

Back onto the credit card?

Now we’re ready to choose a workflow.

Not before.

Situation 1: Original Purchase Was an Expense or Check

Suppose Resistance Coffee & Books bought supplies and recorded the purchase directly as an Expense rather than entering a Bill first.

Later, the vendor returns some money.

Current Intuit guidance uses a Bank Deposit for that refund, with the vendor as the source and the same Category/Account used for the original expense.

Conceptually:

We recorded money going out as an expense.

Now:

Some of that money came back.

We want the books to show both parts of that story correctly.

Situation 2: We Have a Bill and the Vendor Gives Us a Credit

Different situation.

We use Bills to track what we owe this vendor, and the vendor gives us a credit that should reduce a current or future payment.

Now Vendor Credit makes sense.

Create the Vendor Credit and apply the available credit when paying the appropriate Bill. QuickBooks currently applies available vendor credit through the Pay Bills workflow.

Conceptually:

We owe the vendor money.

The vendor says:

Actually, you owe us less.

That’s different from money physically arriving in the bank.

Situation 3: We Already Paid the Bill and Then Got Money Back

Now we’ve changed the story again.

The Bill existed.

We paid it.

Then the vendor refunded us.

Current Intuit guidance uses three connected pieces:

Vendor Credit → Bank Deposit to Accounts Payable → Link them through Pay Bills

That Accounts Payable piece matters because it allows the deposit to connect back to the vendor credit rather than sitting in the books as mysterious incoming money.

This is precisely why I don’t want you memorizing:

Vendor gives money back = click Vendor Credit.

Sometimes the credit is only part of the workflow.

Situation 4: The Refund Goes Back to the Credit Card

Different original transaction.

Different destination.

Different workflow.

When a vendor refunds a purchase directly to the credit card, current Intuit guidance uses Credit Card Credit, with the category matching the original expense account.

Again:

What happened originally?

What happened now?

Where did the money go?

Those three questions will get you much farther than memorizing a screenshot.

Gertrude’s Extremely Sophisticated Refund Flowchart

Gertrude has graciously agreed to simplify this.

Vendor owes us something.

↓

Did actual money come back?

NO → We may be dealing with a Vendor Credit against Bills.

YES → Where did it go?

→ Bank account: Look at how the original purchase was recorded.

→ Credit card: Look at the credit-card refund workflow.

And if the original transaction was a paid Bill:

→ Vendor Credit + Bank Deposit + link through Pay Bills

There.

Gertrude would now like her consulting fee.

Gladys has offered a biscuit.

Negotiations have stalled.

1099 Contractors: Future You Would Like a Word

Now let’s talk contractors.

QuickBooks can set up contractors for 1099 tracking and track their payments so the information is available during 1099 preparation.

And this is one of those situations where good setup throughout the year is considerably nicer than discovering in January that nobody has been paying attention.

But don’t reduce this to:

Vendor → checkbox → therefore 1099.

QuickBooks helps track information.

Humans still need to understand which contractors and payments are reportable under the applicable tax rules.

Current QBO also provides specific 1099 reports, including the 1099 Transaction Detail Report, 1099 Contractor Balance Detail, and 1099 Contractor Balance Summary.

Those aren’t just tax-season decorations.

They’re investigation tools.

What If Somebody Wasn’t Set Up Correctly?

Do we immediately reconstruct an entire year by hand and begin screaming?

No.

If a contractor is missing or an amount looks wrong during 1099 preparation, current Intuit guidance has you investigate things such as whether the contractor is active, whether they’re set up for 1099 tracking, and what the underlying reports and transactions show.

So:

Set things up carefully.

But when something looks wrong:

Investigate before panicking.

Gertrude remains available if panicking becomes unavoidable.

The Things I Actually Want Stuck in Your Head

A Purchase Order documents an intention to purchase. It doesn’t prove by itself that goods arrived or money left the bank.

Partial orders happen. Record what actually happened rather than forcing reality to match the original PO.

Multicurrency is not a curiosity switch. Once it’s enabled in QBO, it cannot simply be turned back off.

Vendor Credit and Vendor Refund are not interchangeable instructions. Look at the original purchase and what happened to the money.

1099 tracking supports human judgment. It doesn’t replace it.

And most importantly:

Never let QuickBooks’ ability to perform a workflow convince you that you’ve chosen the right workflow.

That’s still our job.

The Vendor Vault Scavenger Hunt 🕵️

This one comes with the usual rule:

Use a sample/demo environment or another QBO company where you are explicitly allowed to experiment.

Do not conduct educational fuckery in Brenda’s live books.

The Case

Your client owns a high-end bicycle shop.

They order 50 custom bicycle frames from a vendor in Italy using a Purchase Order.

The shipment arrives.

Five frames are damaged.

The vendor won’t replace them and instead agrees to issue a credit.

Your job isn’t to give me three memorized button names.

Your job is to figure out how the business events relate to the QuickBooks transactions.

Mission 1: Find the Purchase Order

Locate Purchase Orders in your current QBO environment.

Then answer:

What does the PO represent?

Has money necessarily left the bank?

Does the PO prove the frames arrived?

What transaction might eventually connect to it?

Mission 2: Follow the Purchase

Find how an open Purchase Order can be connected to a Bill or Expense.

Now imagine only 30 of the 50 frames arrived.

Can you work with only part of the PO?

What happens to the remaining quantity?

Don’t just tell me where the button lives.

Tell me what QuickBooks is representing.

Mission 3: Find Multicurrency

Locate the Multicurrency setting.

Do not turn it on just because I told you to find it.

Read the warning.

What becomes permanent?

How would using euros for the Italian vendor affect transactions involving that vendor?

Mission 4: Investigate the Damaged Frames

The five damaged frames are where things get interesting.

Suppose the vendor says:

“We’ll credit the amount against what you owe us.”

What kind of transaction might represent that?

Now change the facts:

“We’ve already been paid, so we’re sending the money back to your bank.”

Would you necessarily use exactly the same workflow?

Why not?

Mission 5: Find the Contractors

Locate the contractor/vendor area and find how QBO identifies contractors for 1099 tracking.

Then find at least one 1099 report.

Don’t merely tell me its name.

Tell me:

What could you investigate with it?

Bonus Mission: Break My Directions

Find one thing in your current QuickBooks interface that isn’t exactly where you expected it to be.

Seriously.

That’s the bonus.

QuickBooks changes.

Menus move.

Labels change.

And if the only thing keeping you functional is remembering that somebody’s screenshot showed a button in the upper-right corner six months ago, we’re fucked.

Learn what you’re trying to accomplish.

Then learn where today’s QuickBooks lets you accomplish it.

Resistance Coffee & Books: Your Turn

Let’s see whether the concepts survived.

Scenario A

Resistance Coffee & Books orders 30 café tables.

Only 18 arrive.

The remaining 12 are backordered.

What transaction documents the original order?

Should we pretend all 30 arrived?

What happens to the remaining portion?

Scenario B

They begin buying merchandise from a European vendor who invoices them in euros.

What QBO feature becomes relevant?

What warning should stop you from casually enabling it in live books?

What information would you verify when recording a foreign-currency transaction?

Scenario C

A vendor agrees Resistance Coffee & Books was overcharged by $75 and applies the $75 against an unpaid Bill.

Did money physically arrive in the bank?

What does the credit actually represent?

Scenario D

Change one fact.

That Bill had already been paid.

Now the vendor sends $75 back to the company’s bank account.

Why isn’t that identical to Scenario C?

What relationships need to be represented in QBO?

Scenario E

A contractor isn’t showing correctly during 1099 review.

Do we immediately reconstruct the entire year manually?

God, no.

What setup, reports, and underlying transactions should you investigate first?

Mini Quiz: Gertrude Has Entered Accounts Payable

1. What does a Purchase Order primarily document?

A. Money that has already left the bank
B. An intention to purchase from a vendor
C. A vendor refund
D. Gladys’s Chewy order

2. You ordered 20 chairs and received 12. What should you do conceptually?

A. Delete the PO
B. Record all 20 because that’s what the order says
C. Record what actually happened and leave the remaining portion unresolved until reality catches up
D. Create eight imaginary chairs

3. What should happen before enabling Multicurrency in live QBO books?

A. Understand that it can’t simply be turned back off
B. Click it immediately and investigate later
C. Ask Gladys
D. Convert the entire company to euros for ambiance

4. A vendor sends money back. What should you determine before choosing the QBO workflow?

A. Which transaction screen has the prettiest icon
B. How the original purchase was recorded and where the refund went
C. Whether Gertrude personally approves of the vendor
D. Nothing; all vendor refunds work exactly the same way

5. A contractor isn’t appearing correctly during 1099 review. What’s the best first instinct?

A. Assume the entire year is destroyed
B. Delete the vendor
C. Review setup, tracking, relevant reports, and underlying transactions
D. Leave the country

Answer Key

1 — B

A Purchase Order documents the intention to purchase. It does not, by itself, prove payment or receipt.

2 — C

Partial orders happen.

The books should reflect reality, not optimism.

3 — A

Understand permanent or consequential settings before changing them.

4 — B

This is the big one.

Original transaction + what happened now + where the money went.

That’s how you begin choosing the correct refund workflow.

5 — C

Investigate first.

Always.

Gertrude appreciates this answer.

Her desk-enforcement services will not be required.

And What Did Gladys Learn?

Absolutely fucking nothing.

Look at her.

She attended the entire module, contributed no meaningful accounting insight, approved several imaginary snack-related Purchase Orders, and will probably receive better reader evaluations than I do.

This is why she is a special guest and not faculty.

She is also a very much real dog I hope to adopt very soon from a shelter in Marianna, FL:

Gertrude has requested that this distinction be printed prominently.

Wallace loves everybody and has declined to comment.

Bigger Clients. More Complicated Books. Same Rule.

This module gave us more machinery:

Purchase Orders.

Partial orders.

Foreign currencies.

Vendor credits.

Vendor refunds.

Contractors.

1099 tracking.

But none of that changes the fundamental thing we’re learning.

QuickBooks records the business.

It does not decide what happened in the business.

The machine can connect transactions.

It can perform currency conversions.

It can maintain credits.

It can track contractor payments.

It can produce reports.

But somebody still has to understand what those transactions mean.

That’s the Resistance Accountant.

Not somebody who memorized where five buttons lived.

Somebody who can look at the business event, look at what QuickBooks recorded, and ask:

Does this actually make sense?

That’s the skill we’re building.

Use the machine. Train the human.

And please, for the cleanliness of your desk, investigate before Gertrude has to get involved.