How to Record Prepayment to Hotel and Commission from Them?

elaine_C

I book travel reservations for groups.
The process is:
A. Collect pre-payment from client upfront,
B. Make pre-payment (most of the case) to hotel,
C. After group check-out, send commission invoice to hotel.
So far, I have set up the first part - record pre-payment (under "other income" - "deposit holding account", then invoice client). But I couldn't find instruction for the rest. Hope someone can help me out.

Question 1: Should I enter hotel as vendor or customer? -- In usually situation, it should be vendor as I pay them. But they also need to pay me commission, as income. When I send commission invoice, I won't be able to selection from my vendor list.

Question 2: What' the full steps (including account setup) to record pre-payment to vendor from transaction page after payment is made/showed up in transaction.

Question 3. Since the pre-payments from client are hold in "other income", I record them once they show up in transaction by selection the associated invoices. Do I need to change the pre-payment to under income (say after group check-out, since by then it's no longer pre-payment)? Or the system will change it automatically? Or It doesn't matter?

Thank you very much!

Alexia

Hi, @elaine_C,

I'm not sure how to best approach these without more information. Could you give me more details about how those three steps are handled in the real world? If I have a better picture of this process, I'll be able to assist you best.

elaine_C

@ alexia
The 3 steps are literally just as simply as I said. Not sure what else you need, but I will try.
Say on Sep 1, 2018, I book Hotel A for Client B's group stay Dec 1-3, 2018. Per contract with hotel, deposit $500 due immediately, balance of $1500 due Nov 1. I will get commission from hotel of $100 from this reservation.

Step 1: Collect pre-payment from client.
I will create an Estimate for total amount, then convert invoice 1 for $500, and invoice 2 for $1500. Client will pay invoice 1 $500 right away, and invoice 2 $1500 on Nov 1.
The account I put client's payment under: Other Income - Deposit Holding Account. Then at Product/Service, I add item name "Hotel Reservation" + Income account "Deposit Holding Account". When I create estimate and invoice, that's the item I will pick.
When client's payment showed up in the transactions (synced with my bank), I double click the transaction, select related invoice and record the payment. The invoice will be marked as paid.
Q1 -- Will these payments always stay in "other income - Deposit Holding Account"? Or will they automatically be transferred to income account at certain point (though I doubt that would be the case)? Or is there a step to make it happen? I mean, overall, it might not matter. But technically, prepayment from clients is liability not asset, also wondering without the change, how will it effect the financial statements.

Step 2: Make pre-payment to hotel.
Once payment received, I provide payment card to hotel. They will card my card per our contract -- all prior to group's check-in date. At the time group arrives, everything has been paid.

Step 3: Send commission invoice to hotel.
After group left, hotel will send me final receipts to make sure everything looks good. From there, I will send them an invoice for the commission I earned -- $100 in this case. Upon receive the invoice, hotel will send out check of $100 to me.

Q2 -- Should I enter Hotel as my Vendor or Customer? In usually situation, it should be vendor as I pay them. But they also need to pay me commission, as my income. And I won't be able to selection them from my vendor list, when I send commission invoice -- since only customer will show up on that list.

Q3 -- What' the full steps (including account setup) to record pre-payment to vendor from transaction page after payment is made/showed up in transaction.

Hope my explanation answers your question.

Thanks again for your help.

Elaine

Alexia

Hi, @elaine_C,

I'll start by saying that you are the right path having suspicions that this money should belong in Income. The money you charge to your clients should, in fact, end up in a liability account. This is because the money isn't technically yours, but the hotel's.

To do this, you'll have to first create a pair of liability accounts (Hotel Payment Payable) and a matching income account (we'll just call this one "Hotel payment").

You'll want to assign the Hotel Payment Payable income account to the rest both of your line items (if you prefer, you could make 2 different accounts for the deposit and the full payment). After a payment, use a journal entry to move the amount of the income from the income account to your liability account.

When the hotel takes a payment, categorize it to the Hotel Payment Payable. That will bring down the balance of that liability account (you will owe them less).

I think that covers everything for question 1 and 3. If you want to only use income accounts, you could but it wouldn't be accurate to do so. It wouldn't affect much, but it might give an accountant pause.

For question 2, the answer is both. The hotel would have to exist as both a vendor and a customer, so it'll have to be added to both lists.