Using GnuCash – Vendors, Purchases and Bills

Small businesses often might need to purchase things or services from vendors such as online stores, regular retailers or other small businesses. Whenever a purchase happens, it needs to be recorded in the books. So, let us see how to do this using GnuCash.

Let us add a vendor and then the purchase bill. Adding vendors is similar to adding customers that was explained in the earlier post.

1] From the top menu, click on Business -> Vendor -> New Vendor…

2] At the New Vendor popup window, enter the details of the vendor “Online CompStore Inc.” and click OK. Make sure the default currency for this vendor is according to the location of the business.

3] Create an account “Info Tech Purchase Payables” under top level account “Liabilities” and type A/Payable. Also create another expense account “InfoTech Purchase Expense” under Expenses top-level account.

4] To add the new bill, select from the top menu, Business -> Vendor -> New Bill…

5] Enter the Bill ID, Date Opened as shown below. Also find and select the vendor “Online CompStore Inc.” which was added in step 2. This task is similar to finding and selecting the customer during the creation of new invoice. Then click OK button.

6] At the “Edit Bill – ….” Tab, enter the date, details of the items purchased, Action as “Material”, expense account as “Expenses:InfoTech Business Purchase Expense”, quantity and unit price as indicated in the screenshot below. At the last line click “Enter” key and then click “Save”.

7] Click “Print Bill” icon to view the bill as it exists now. Please note that we didn’t specify tax in the bill because we took the unit price including tax. So the final total will be cost including tax. (This should be okay for small businesses assuming the sales tax given while purchasing is comparatively less than the sales tax collected due to services rendered and materials sold to vendors. In such case the sales tax to be returned will be calculated as a fraction of total income earned in many countries. However, similar to how it is done for sales, it is also possible to track cumulative sales tax given during purchases with separate sales tax given account, so that at the year end, it can be subtracted from sales tax collected and then pay the remaining to tax authorities.)

8] The bill need to be posted before payment information can be entered. Click on “Post” icon. A popup window appears asking “Do you really need to post the invoice?”. Enter the values as in the following screenshot with the post date, due date and the Post to Account (Liabilities:Accounts Payable:Info Tech Purchase Payables”). Click on “Save” icon.

9] In order to record the payment details of the bill, click on “Pay” icon. This can also be done through the top menu “Business -> vendor -> process payment” and then selecting the vendor as well as the bill number. At the “Process Payment” window, enter the transaction date, amount paid as well as the account from which money is transferred. Then click OK. The status of the bill changes from UNPAID to PAID. Click “Save” icon to save it.

10] Click on “Print Bill” icon in order to see the printable view of the bill. This can be printed if necessary or saved as a PDF file also for printing later .

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