Free Accomodations how to account for

"John Pippy"

Have you considered using a 100% discount?

Every day I call up a dozen potential customers. I have been doing this for over 20 years. Even though I have never been able to close a single sale I estimate that these lost opportunities resulted in the loss of millions of dollars. I set up an account called "Lost Sales" and make a journal entry in QB each and every day to record this expense.

I feel bad that my income is lower than it should be but at least I have this huge expense to offset my income and save on taxes. Actually I always show a loss so I never pay any taxes. Life is good. Real good.

Sure. Make a journal entry as follows:

Dr. Chef Expense (or similar) Cr. Income (whatever account is generally used)

Conceptually, this is the same as if your colleague had written out a check to the Chef for her fee, and she had written out a check to him for the accommodations.

Hope this helps.

Have to be a journal entry; banks don't really like checks for $0.00.

Thanks all,

The journal entry is the way to go. However, kind of liked Allan Martin's answer...

Thanks again

John -

Allan's answer is trying to tell you that you CAN'T legally write off opportunity costs. The accommodations you provided are not deductible - only the actual payments made.

The free lodging you provided were an opportunity cost and not deductible. Think of it this way: if you paid the Chef $720 more and he paid you the $720 for lodging the net effect on taxable income would be? Right. Zero. Which is the exact amount you can write off.

Best,

Peter

Thanks Peter,

I knew where Allan was coming from, I was only mentioned that I liked his answer. The only confusing part for me in all of this was the actual entry to account for it. She wanted to show occupancy of the room and the fact that there was no funds transferred had both myself and her confused.

Actually Allan never assumed that the OP intended deducting the lost revenues. Allan wanted to emphazise that sometimes some end users get carried away and report far too much. Allan likes to keep things simple.

If the toilet in one of the rooms gets stuffed up with s***it and can't be fixed, should lost revenues be booked?

What Allan is missing in both of his examples (as well as some of the other replies) is that there was an exchange of services, which is known as bartering. For the B&B owner, even thought the nominal $720 income is offset by the chef expense, there is the additional expense for housekeeping and utilities for the occupied room which ought to be correctly accounted for (as chef expense, and not expense of providing lodging to guests).

Quickbooks Pro 2006 has built-in help for how to enter a barter transaction, although I haven't used it myself.

The $720 barter amount should be included in the 1099-MISC tax form that the chef receives from the B&B owner and included in gross receipts for both parties. If there were personal luxuries included with the room beyond necessary and ordinary business expenses, chef might have some net taxable income, but that's his issue.

See IRS Pub 334 as a starting point for more information on the tax aspects.

As an aside, the local government might be miffed that they didn't get any occupancy or lodging tax on the transaction.

-Mark Bole

Agreed, from now on when I go on-site to a client and they offer me a cup of coffee I will remind them to to make a journal entry debiting office expense and crediting coffee sales.

A barter trransaction would have been the chief offering to teach the kittchen staff how to bake one of her famous apple pies in exchange for a weekend stay at the bed an breakfast for two.

Just a thought. should a cruise ship company book income for the cabins the crew sleeps in while out at sea or in port for that matter?

From the original post, that sounds more or less like what happened. Fees and transportation were paid, the free room was thrown in as part of the exchange.

-Mark Bole

No, that's employee meals and lodging, deductible to the business and possibly wage compensation to the employees.

-Mark Bole

Interesting is how to account when you shanghai a crewman for you merchant vessel.

Yes Mark that is exactly what happened. The Free accommodations was part of the deal. I only questioned a way to account for it. As it stands now, there is 6 rooms in her B & B. Each month she does a tally of the rooms that are rented and the revenue for each room. Normally you can just multiply the accommodation fee by how many night the rooms were occupied and come up with a monthly tally. In this case there was 8 days of a room being occupied, but no corresponding revenue. We were just wanting to find out a way to account for that.

Thanks

One more question. Do retorical questions require a question mark?

Were quests turned away because the chef occupied the room?

In my opinion, the actual cost to the B&B of having an occupied room is the amount to be booked. You can use a separate income account to record these types of transactions which there will likely be in the future with various circumstances. If the cost of the room being occupied is $100 rather than the retail cost of $700, the entry would be:

Debit - Chef Training (pick any expense you like) - $100 Credit - Non-Rental Income - $100

I believe the 1099, if one is required, is for this cost value.

Other circumstances would be for advertising purposes. A critic comes to town and you want to provide the experience for the exposure. Same journal entry but the Debit is for Advertising.

Relatives come to town and they stay in a room. Now you have a Debit to Owner Draw (or it's corporate equivalent)

If you do a true barter for the room such as $700 worth of painting for the room, then you book the room as a rental revenue and debit Repairs for $700. The 1099 says $700.

If you do a barter for the room in exchange for something personal such as piano lessons for the kids valued at $700, the entry is room rental and debit Owner Draw (or it's corporate equivalent). There is no 1099 required.

That'a irrelevant. Your original point, that "opportunity costs" or "lost sales" from clogged toilets (or your failed sales calls) don't count and needn't be recorded doesn't apply here. An actual business transaction took place and should be accounted for as such. And for income tax purposes, the amount is required to be included in gross receipts even if there is no net tax impact.

Fortunately Quickbooks help includes guidance on how to enter a barter (cashless) business transaction.

-Mark Bole