How do you create and apply a Vendor Credit to reduce the amount due?

• A. Create a Vendor Credit and apply it to an existing bill or expense to offset the amount owed.
• B. Record a Customer Payment against the bill.
• C. Increase the liability account and leave the bill unpaid.
• D. Write off the bill as bad debt.

Answer: (A)

A vendor credit represents a refund or discount from the supplier. By creating that vendor credit and then applying it to an existing bill, you directly offset the amount you owe the vendor, reducing Accounts Payable and the bill’s outstanding balance. This is the standard way to reflect a vendor’s credit against a specific bill, keeping your AP records accurate. If the credit exceeds the bill, you can apply the remaining amount to future bills or process a refund, depending on your setup. The other options don’t fit: a customer payment applies to customers, not vendors; increasing the liability and leaving the bill unpaid ignores the credit and inflates payables; writing off as bad debt is for uncollectible receivables, not vendor credits.