Tracking purchases on behalf of clients correctly

kcfg

I run a small design studio (sole proprietor) and am trying to understand how to properly track purchases that I make on behalf of my clients AND ensure that my income/expenses are accurate come tax time.

Here is a very dramatic example situation - let's say my client wants to buy an item from one of my trade suppliers. My cost is $15,000 and I provide a quote to my client for the item at $15,050.

I issue an invoice for $15,050 for the item
My client pays me $15,050 cash
I then purchase the item for $15,000 on my business credit card
And then I pay my credit card bill using the cash I was paid by my client

When all is said and done, I have made $50 (yay!)

My challenge is right now that $15,050 that I invoice my client goes into an income account and when I purchase from my supplier it is appearing as an expense.

If it stays like this when I go to do my taxes it would look like I have lots of income and am also claiming big expenses as well.

I'm guessing that these transactions should NOT be tracked using income/expense accounts but I'm not sure what accounts I need to set up to better track everything.

I know the CRA wants to know about the $50 I made in the end and it seems like the other $15,000 would just make my income/expenses look crazy.

Thanks for any help!

JulianP

Hey @kcfg !

Based on the information you provided, I believe you should be allocating your expenses to a Cost of Goods Sold expense account. This type of expense account is used to track expenses that are directly attributable to the product or service you are selling. We have a Help Center article here that sheds some light on this. However, to ensure your books are correct and accurate come tax time, I suggest reaching out to a professional CPA as we here at Wave Support are not accountants.