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How to Manage Barter Exchange Transactions

These instructions cover how to use barter exchanges within Total Office Manager.  The most common scenario is an even exchange of goods/services at one time and more rare scenarios in which goods/services are fulfilled by one party at the time of exchange, but the other party makes full repayment by installments over time.

For example, you repair a unit for a lawn care vendor that maintains your grounds. You agreed to repair the unit in exchange for lawn care services. A Barter Exchange Agreement would be entered into by both parties.  The barter exchange would be completed in full once the labor to repair the unit is done and the exchange for 6 months’ worth of grounds maintenance is performed.

You do not want to credit your grounds maintenance vendor for 6 months’ worth of services at the time of the exchange. Instead, you enter an invoice for the repair work completed for your grounds’ maintenance company. Each month the vendor performs lawn care maintenance, a payment is entered equal to the amount of the bill your company receives for the grounds care services to reduce the balance of the invoice. The bill is then also paid using the “Barter” bank account.

It is important to note that the IRS and Generally Accepted Accounting Principles consider these exchanges at their fair market cash value. Because of this it is possible to use barter for a partial payment of an invoice. It is strongly advised to speak with your qualified tax professional to make sure the entries your are in line with their requirements for your tax filings.

Requirements Within Total Office Manager

  • A bank account for use with barter exchanges
  • A payment method for use with barter exchanges
  • A terms for use with barter exchanges
  • A customer and a vendor for use with barter exchanges.
    Please Note: While making a separate vendor account is not required, it is recommended to keep barter and traditional transactions separated.

Entering a Barter Exchange Transaction

  1. Enter the invoice or sale for the customer as you normally would.  It is recommended that you use an invoice if this is going to be an installment over time barter exchange, and use a sale receipt if the exchange will be completed for both parties at the time of the exchange.  If using a sale receipt make sure to set the Payment Type field to “Barter”, and set the Deposit To field to the “Barter” bank account.  It is recommended that an invoice be used if the customer is going to only pay part of the balance by a barter exchange.

  2. If using an invoice, you will need to enter a payment each time the vendor performs services or provides goods to repay the Barter Exchange Agreement.  Make sure to use the “Barter” bank account for the Deposit To field.  This will decrease the balance owed by the vendor, as shown in the customer’s Accounts Receivable account, to you and then you can use that balance stored in the “Barter” bank account to pay the bills generated by the vendor providing the service/goods that generated the payment that you just received.  If the vendor has provided their service/goods then you would enter in the bill for that service/good.

  3. To pay bills from services rendered/goods received from the vendor in a barter exchange, consider the following.  Since the balance information is being kept on the customer side of the barter exchange it can get rather difficult to keep track of bills paid from a vendor if a separate barter account is not created for the vendor.  It is possible to use the existing vendor account to enter bills associated with barter exchanges, just make sure you change the terms to the “Barter” terms and make detailed memos on what bills are included in barter exchanges.  If you use a separate vendor account for barter exchanges, you do not have to keep track of how much or what bills have been paid out of the “Barter” back account because the sum of all bills entered should be equal to the amount of payments/sales receipts entered.  The way of paying bills is the same regardless of which way you chose to enter your vendor barter exchange bills.  Process the bill normally, except only select bills that are for barter exchange, and pay that bill out of the “Barter” bank account.