I have purchased some inventory items, which i then sell to my customers. A competitor of mine has bought some of my inventory product at my cost from me, as we have a mutual alliance. My question is this:
If i invoice him for these items at my cost, it will reflect in sales - which is not a true sale. It will also reflect an in-accurate profit margin reports. How can i get reimbursed for these items, including the taxes paid, so that my inventory is reduced properly, and my asset account is reduced, but my sales are not increased?
It sure looks to me like you made a sale, and at zero profit. Of course it will affect your margin and so it should.
However, I guess if you wish to isolate this from your usual sales (I think this is what you are trying to do, then you could use a stock adjustment to move these items out of your inventory asset account to, say, a "Mutual Alliance" account. It matters not what type of account, because it should balance to zero, but let's say it is an expense. Then create an item called "Mutual Alliance", point it at this account and use this to sell to your competitor. You will lose any stock item information by doing this, but you will restore your margins on your normal sales.
Your question about recovering taxes etc is irrelevant to this treatment - they are either recovered as normally from an authority if it is of the nature of a goods and services tax similar to that which we have in Australia, or in the pricing to the competitor, no matter how you treat the transaction.
But I repeat what I said earlier, it sure looks to me like you made a sale at cost, no matter to whom it was made. And consequently, your overall margins have been affected. Wouldn't it have been better if you made the sale to the customer, not your competitor? If you sell to your competitor who then on-sells to make a profit, have you not missed a profit opportunity, and should not this be recognised by your reporting?
Well, ideally, yes. However, sometimes we buy large amounts of inventory product for the higher volume discount pricing, and split the items. It serves to benefit both of us to do it this way sometimes. We also consolidate our distribution costs sometimes for the same reason.
Since you are collecting sales tax from your competitor you will have to show the transaction as sale as you will be required to report your Gross sales when submitting your sales tax report. However you can create class say 'Sale Normal' and 'Sale Other' and use them each time you record normal sales and sale to competitor respectively. If you want to see your Profit and Loss report without considering the Other sales then go to Modify Report > Filters > select class > now select 'Normal Sales'. Profit will not be changed but sales will decrease to show only that part of sales on which profit is made.
Mike Block - QuickBooks Tax Cut C.P.A. > Hello Group,
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