Home Business Accounting Question

yea, i would keep it simple and just record the sale, then cosg...the delta or profit will "fall to the bottom" of the income statement...

thanks for the reply. How about the portion that I send that is for sales tax? Should I record that as Expense - tax? Or should I just lump the whole thing together and just record the whole thing as income and then the expense as cost of goods sold? I guess my follow-on is should I account for sales, shipping and sales tax separately, or lump them together since the company she sells for is paying tax and shipping.

While that process "may work", it's incorrect. From what you've said - her income is a set commission, she is not responsible for any functions of purchasing, handling or shipping the product. Your bookkeeping should reflect the actual nature of her business, as follows: Her commission should be recorded as income. This is her only income, the rest of the money she collects is not income and should not be recorded as such. After deducting her commission, the balance of the money she collects is payable to the company and should be recorded as such - as an Account Payable or Other Current Liability.

With all respect to both you and ~^beancounter~^, when responding to a newsgroup message you should quote part of that message (including identification of the sender) - not necessarily all of it, but sufficient to provide some continuity. If you fail to do this, other responses may be completely off-topic and persons who actually have useful information may not respond at all.

wrote ...

commission.

i would keep it simple and lump it all together, unless there is a reason not to.....you can always "goo deeper" later, if needed...

"!-!" wrote

While that sounds nice and all, I'd do what beancounter said and record the full amount collected as "sales" and the amount sent to the company as COGS, the gross profit should be her commission and any other income she earns, then deduct her operating and overhead expenses.

The reason is simple, in an audit, the books match the bank deposits and the paper trail follows the books. Otherwise you start out having to explain why your numbers don't match and why what you claimed as income is correct.

On Sun, 28 Aug 2005 14:25:00 -0400, in alt.accounting "Paul" wrote in :

They are not sales. Yes, they are receipts, but the vast majority of the receipts are being held as agent for the selling company. You must enter all transactions, but not all transactions are sales.

Cash (Customer Payment) $10,000.00 Commission Revenue $ 800.00 Vendor Payable 9,200.00

Later, your payment to vendor will be to these accounts:

Vendor Payable 9,200.00 Cash (Vendor Payment) 9,200.00 No problems with accurate reporting, no problem with overstated revenue.

Well we disagree, so OP must choose.

By "books match the bank deposits", I guess you must mean that "SALES match the bank deposits". That is so rare among my clients that it hardly bears consideration, as they make deposits of shareholder advances, customer prepayments, tax refunds, bank loans, etc., in addition to sales. It is never an audit problem, rarely if ever requires explanation, and is easy to explain if necessary.

Instead you would have her report sales that are not sales, COGS that are not her costs, taxes collected as if they were sales, liabilities as if they were sales? You would have her NOT report liabilities that she owes?

In an audit you think she would NOT be asked why she reports selling products and collects taxes but does not file sales tax returns? Of course it can be explained, but it seems to me that this "simple method" misrepresents the nature of the business and requires much more explanation than my method. I would prefer to explain why the correctly reported income is correct than explain why I'm intentionally reporting income incorrectly.

I acknowledge that you are a professional and located in the same country as OP (a country where, apparently, cash-basis accounting is fairly common). I'm also a licensed professional accountant - with 35 years experience, much of it with small-business clients, albeit in a country where cash-basis accounting is quite rare. I stand by my previous advice. .

"Paul" wrote ...

A like-minded soul ! I'm not alone. Thank you David.

revenue.

"David Jensen" wrote

I understand that. You have to remember WHO will be keeping the books. They don't have a clue as to what an asset is, nor a liability. And since they probably won't be dealing with inventory, payable or receivables, they'll most likely be on a cash basis.

This isn't a Fortune 500 company here. Just a simple mom operation here. I suspect that a simpler form of accounting would be reasonable. Really now, the payable is like what, on the books for as long as it takes to cut the check? Why bother for a net effect on the bottom line of $0.

Wanna bet?

I mean no offense to the man's wife here. This is a realistic solution to keeping these types of books given the abilities of who will be entering the data. GAAP and SOX do not apply here.

iklei...as you will see in the responses, there are many ways to "skin the cat" in accounting....i would keep it simple and easy to book and understand, and explain to an auditor if ever required (maybe 2-3% chanse)..

i am sure you and your wife have many other items to worry about in running your business than the accounting issues...

On Sun, 28 Aug 2005 16:39:29 -0400, in alt.accounting "Paul" wrote in :

They know they have to pay the company the amount they owe the company. If they cannot get that right, they can't be trusted by the company. Don't condescend to folks who aren't accountants until they show that they cannot grasp the basics.

That way the mom operation always knows how much she owes. It strikes me as easier and gives her a better idea how much she is making.

If all else fails, I agree with you, but given that there is this payable on each collection, it makes sense to post it immediately, not when she gets around to paying it. It also makes the IRS happier if she isn't running a whole bunch of non-revenue through her revenue account.

"David Jensen" wrote

As if you didn't know, she doesn't owe the company anything. No order is placed until she sends a check to the company with the order. The only time something is owed, would be the time between depositing the buyers check, and writing the check to the company. So, if you really wanted to book this correctly, you would book the buyers/customers deposit to a liability (on the off chance the order never gets sent to the company for processing, she would owe it back).

Save yourself a lot of guesswork. Get yourself an accountant and get a chart of accounts set up by him or her. Ask for some basic procedural advice. THEN he or she does not have a mess to clean up come tax time.