With accounts payable, your vendors send you invoices to pay for services or products you purchased from them. In QuickBooks, this transaction is known as a bill. If you return product or ask for a credit for services, the transaction in QuickBooks is called a vendor credit. This is not to be confused with the accounts receivable transaction, credit memo.
To set up a vendor credit, you’re going to go into the vendor list and select “Enter Bills”. Here, select the credit bubble. This changes the transaction from a Vendor Bill to a Vendor Credit. Then pick your vendor, and enter the amount. You may enter why they are giving you a credit in the memo section for future reference. The result of a vendor credit is going to be a debit to accounts payable and a credit to the general ledger account or item account you choose on the bottom half of the vendor credit.
After you select “Save + Close”, go into “Pay Bills”. You need to check the box next to a vendor that you have created a credit for. Then select credits and apply the credit to your bill. If a vendor rewards you with a credit for damage or dissatisfaction, you can apply the credit to an open bill so that it lessens your accounts payable balance to that vendor.