How to enter trade-ins

That's exactly what my accountant told me. He said we do the best we can and if the IRS doesn't like it, they'll let us know. He said there are so many ambiguities in the tax law that no one can ever be 100% sure that they did some things correctly. Many times the IRS disagrees and goes after a company. Then the company fights it in court and the ruling goes against the IRS. A law can't be proven right or wrong until it is challenged in court and a ruling is forthcoming. My accountant said it is more important to not have your tax liability change than it is to be right or wrong.

Bob

Agreed, why bother to do it correctly. Just take the see no evil, hear no evil, taste no evil route.

Ha, its Captain Enron

Greg

I like my accountant. He is humble and recognizes the fallibility of mankind. I think he is as knowledgeable as anyone else and knows that perfection with the IRS is a relative term.

Bob

Allan is right. This can be done in a single entry on a single invoice.

Can I give a hint from the peanut gallery Allan?

. . .

You didn't say no so ...

. . .

You're going to need another item and going to have to look up something before you enter your invoice. Oh a handy group to bury the details from the customer might be nice.

Oh, I may give a second hint too, but your belts may be brown not black if you read it.

. . .

Is the return price the actual value of the item? Maybe there is some kind of something else involved?

I hope that wasn't too obvious.

All hints are accepted. Do others in this group recognize the peanut gallery reference? Can it be the one of the CA girls is Princess, Summer Fall Winter Spring?

Several new items will need to be set up, however you may are on the wrong path.

I would assume the trade-in value is the value that will be placed in invenory. However the true Black Belt answer can adjust for any variations.

Despite what the sales tax people say, I think the taxable amount is the sales price without regard to the trade in. The trade in is a form of payment. But I am not one to argue with the logic of the legislature or government agencies.

I am not a QB expert but I thought this was a good real world problem ( both accounting and QB).

Create an invoice with 3 line items. line one the inventory item being sold. 1 widget $500

line two a non inventory item using a the same gl account as line three below. If it can reduce taxable sales, code it as taxable otherwise non-taxable. Enter the trade in allowance as a negative

-$100

line three an inventory item for used widgets with a cost set up equal to the trade in allowance ($100) and the same gl account as line two. Enter a negative quantity and no sales price. -1

The invoice should end up widget $500 trade in -100 - sales tax 5

total $405

in the gl ar 405 dr

inventory 250 cr the cost of a widget inventory 100 dr the used widget

sales tax payable 5 cr

Sales 500 cr

Trade ins 100 dr trade ins 100 cr

cogs 250 dr

Allan, if there is a better way please reveal it.

Macy

There is no logic to argue with. The law is the law, until changed. Most states treat trades in the same manner.

Sorry no belt::

Per above description of lines above.

Line 1 500 line 2 -100 line 3 -100 sales tax 5 total 305 (Wrong)

If by better way you mean a method that actually works, yes there certainly is. WHO WILL GET THE BELT?

On Wed, 1 Feb 2006 16:12:12 -0500, "Allan Martin" wrote: Allan you misread and I probably did not make it clear. Line three is only a minus quantity to increase the used goods inventory there is no sales amount.

Macy

Follow this link:

then read the pdf file. The tax is the amount after the trade, not the full selling price of the item.

Bob

Excuse the typo, should have read: The tax is "on" the amount after the trade, not the full selling price of the item. I left out the word, "on" which changes the meaning somewhat. Obviously the selling price is not the tax. Figured I'd better follow up before Captain Enron corrected me.

Bob

If there is no sales amount then where did you get the value for the credit to trade ins?

Trade ins 100 dr trade ins 100 cr

Bob, I don't question what the law states. It is what it is. I just don't agree with their thinking and expressed my opinion. I don't agree with MACRS lives but I use them.

Macy

This is the government thinking: The traded item was taxed when it was initially sold. The new item after-trade value is taxed when the new item is sold and the remaining trade-in value is taxed when the trade-in is subsequently sold. In the end, the government gets the full sales tax on the new item and on the traded item. Anything other than that would be a double tax on one or both items.

Bob

The credit comes from the line three cost. As you know, you do not see the cost on the invoice but it is in the inventory item detail. With a negative quantity, line three debits inventory and credits the same account used for the negative sales, debit, in line two.

The choice of the account I called Trade ins should be in cogs. When the trade in is subsequently sold, that account will will be debited and inventory releived for the cost amount.

Macy

Been away for awhile... and I've come back to this. Sigh...

You know Allan, this is just plain sad. Guess QB isn't the INTUITive product you've always cheered, since you need to be a QB Guru to do a simple trade.

A real world accounting software program should kinda make this easy, wouldn't ya think?

You are on the wrong track. think outside the box.

Once the software is configured correctly entering the ocasual trade is not quite simple. The hard part is the set up.

I agree 100%. If taking in trades is a transaction that occurs often in your business then QB is not the software that you should be using in the front office.

I ment to say is not that difficult.