Boot

I'm not too concerned with how they handle it on their books (their Bad Debt Expense, etc.), just with proper recording on our end.

An adjustment... hmm... this doesn't feel like the kind of thing which requires an "adjustment", per se. Furthermore why would I credit A/P (increase my payable)?

Balance of *what*?

To whom?

You said "Debt settled" -- what were the credit entries to offset the $500 A/P debit? I see $400 for cash (check), but what would the other $100 be, if you are advocating to sell them the card for zero? Something is missing. Would you mind showing it to me in entry format?

Thanks :)

-Holly

On Thu, 8 Sep 2005 20:35:57 -0500, in alt.accounting "Holly J. Sommer" wrote in :

I can think of two ways to deal with it.

First is a straight sale:

A/P $500 Cash $400 Card (rev) 100

COGS $103 Inventory $103

The inventory decrease is always independent of the revenue associated with it.

You could also argue that this isn't a normal sale if the card is not what you normally sell from inventory. Since the first example treats Card as revenue, you could also treat it as a disposal of assets.

A/P $500 Loss on disposal of asset $ 3 Cash $400 Card (asset) 103

Well, this payable isn't to a supplier, though. That would make complete sense if the $100 boot were used to settle up a debt owed to a supplier. This A/P is a commission due to a subcontractor for sales made. Almost wages, but without the W2 implications (going 1099-MISC here). Under certain circumstances, these subs get paid $500 cash, and under others they get paid $400 cash and these $100 cards. The cards aren't being *sold* to the subs, so it's not (sales) revenue...

OK, so I'm thinking then that it might be better to not regard the cards as inventory, and rather treat them as supplies -- use them to cover $100 worth of commissions, same as if we had handed the sub $400 cash and $100 worth of staplers or something -- and then include a $3 loss (on disposal) on the debit side of the payment entry, as David Jensen suggested elsewhere in this thread, and eliminating the card with the credit entry, thus (I'll call them Commissions Payable instead of A/P, then):

Commissions/P 500 Loss 3 Cash 400 Card 103

The cards would then be expensed when purchased, rather than as COGS later. Hmmm...

I am the accountant... a very new one.

Thanks!

-Holly

I think this probably more accurately represents the nature of the transaction, with one modification, that the liability in question should actually be called Commissions Payable, rather than A/P, as I did. It's a subcontractor who made a sale and is owed commissions, as opposed to a supplier, from whom we purchased materials/stuff, and the cards aren't really being sold, they are just being "thrown in" with the cash, to meet the $500 obligation.

Thanks, David!

-Holly

Hah. That poor sod would be me. This is a startup, and I'm the graduating accounting student (hopefully to be in possession of a CPA in about 12 months :) Thanks for helping me think through this! It's been a year or so since I've dealt much with just the bookkeeping aspects like this.

-Holly

Best of luck with it! You've got a great solid base to work on. I went back for this (second) degree with a background in IT. The logic of accounting appeals to me greatly... I've just been enmeshed in the higher-level stuff like consolidations and auditing the last year. The bread-and-butter bookkeeping got a bit dusty on me :)

-Holly

Ok. Write the cheque for $400. They write off the $100 as a bad debt expense, and you post an adjustment through the G/L crediting A/P and debiting Miscellaneous Revenue. YES. Check with your accountant. Any balance exceeding the settlement amount is considered income....

You sell them the card for ZERO. Revenue is zero, COGS $103.

Debt settled.

Sorry, got my A/P debits and credits reversed.

Write the cheque. It automatically Credits the bank and Debits the A/P.

There remains $100 to settle, correct?

The $100 "income" from settling a $500 debt for $400 cash is "income" to the CRA and to the IRS. You expensed the whole purchase of $500, now you are paying only $400. Your supplier is out $100 cash. What you sell him stuff for is your business.

You adjust the $100 on the account because otherwise you still owe the $100 CASH. When you sell product for $ZERO you are effectively reducing your inventory asset $103 for no revenue. Unless you post an inventory adjustment reducing your inventory $103 for the card/boot and post the opposing side to the A/P and your supplier subaccount. If it is a noninventory item and you expensed the purchase of the product, then post a G/L adjustment crediting the original expense account and debiting the A/P supplier sub account.

Just check with your accountant.

The posting you list below seems to best cover your situation.

You can accomplish this by cutting the cheque for $400, and posting to the remaining accounts from within the cash disbursement.

And by accountant, I mean your CPA or other tax or review engagement accountant. The poor sod who has to sort through all that stuff at tax time!

Stephanie

YOu're graduating, I'm going BACK into school this fall to go head first into my CGA designation. I've been working as a bookkeeper (read: entire accounting dept) for about 9 years now....

Thanks. Usually I have a bit more on the ball than I did in that earlier message. I found out yesterday I got into the second class I wanted and was waitlisted on. It starts tomorrow. And I'm trying to get someone on a used book list to get in touch with me about a text she has for sale. She's in my program, at my community college and she's not responding. AND another class starting Tuesday, AND a challenge examination to bone up on. Have a bit on my mind.