Classification/entry question

Been awhile since I've actually done actual entries, and something is eluding me in getting a chart of accounts established for a new business.

The company is membership based, with commissions paid on referrals. The referer can opt to receive $500 in cash, or a combo of $400 cash and $100 gas card. The gas cards are not directly sold, so I'm not sure whether they should be treated as inventory. Specifically, I'm missing an entry or a debit to an entry as evidenced below:

To record the collected sale, and resultant payable to the referer: Cash 795 Referral Revenue 795 Commission Expense 500 Commissions Payable 500

When the commission is paid: Commissions Payable 500 Cash 400 Gas Card 100

So... where is the expense associated with (for lack of a better term) "disposition" of the gas card? Regardless of whether it's treated as supplies or inventory, there's going to be an expense for its cost somewhere (either COGS or Supplies Expense). Can't put it with the first entry, because the card hasn't been "used" as payment yet, so would the second look something like:

Commissions Payable 500 COGS 100 Cash 400 Gas Card 100 Commission Expense 100

Seems kind of weird to "reclassify" some of the commission expense, even though it all comes out in the wash on the Income Statement (and tax forms).

I'm sure it's something simple, but I can't quite find what feels like the "correct" solution. Any ideas on the entry, as well as whether the cards should be treated as supplies or inventory (or does that REALLY even matter)?

Thanks, Holly

Reply to
Holly Sommer
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"Holly Sommer" wrote

Burried in the commissions expense.

You should create a "Gas Card Inventory" asset and reduce it as they go out the door, which is the most correct accounting of this type of thing.

Frankly I'd want to keep a tight noose on the gas card stock (it's better than cash) and needs to be accounted for accordingly.

Reply to
Paul Thomas, CPA

See, I kind of thought that, but something bothers me about expensing the card before it is dealt out as partial settlement of the debt. I guess that doesn't violate the matching principal, but it sure feels weird, given how COGS is attached at the hip to Inventory reduction, in my brain. This just looks wrong, even though it represents what you're suggesting:

Cash 795 COGS 100 Commissions Expense 400 Commissions Payable 500 Referral Revenue 795

The COGS is practically screaming at me for an Inventory credit there :)

Not really. If it were valued in gallons (like foreign currency or a trading security) rather than dollars, then it *could* be better than cash (or worse than it, depending). As it is, the cards have a stated face value, so they are essentially plastic $100 bills. Or did you mean "better than" in some other sense?

Regardless, they are assets, and will therefore be guarded appropriately anyhow :)

Thanks, Paul.

-Holly

Reply to
sommer

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