how to record purchase and sell of inventory when its partnered with third party
babu
Member Posts: 3
Hello, i buy and sell heavy equipment, sometimes i buy on my own, sometimes we partner 50/50 with friend. when i make a purchase i post it as inventory under assets, since its not expense. how do i go about posting the 50% i receive for the partnership on the machine? also currently I'm posting expenses done on machines as cost of goods sold under expenses. how do i post 50% of the expenses i receive from partner? and at last when i sell i post it as sales on money i receive but how do i make journal entry properly where i credit the inventory(asset) account, and debit the cost of goods sold, which sometimes there aren't any costs involved besides buying the machines it self which is posted as inventory(asset) to begin with?
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@babu,
My first recommendation and the appropriate way, if you are in the US, is that since you are acting in partnership with someone else, then it should be shown as a separate business and file it's own return. You and your friend would each be 50/50.
To your point above, you are receiving cash from your partner which is a debit to cash. Your credits would be inventory and associated expenses. The reason being is that you are not paying 100% for the inventory or the expenses, so you would not show 100% of the costs. When you make your sale, you are now receiving 100% of the selling price. You would credit inventory for the cost on your books. This will skew the profit because your partner funded 50%. However, I'm assuming you would cut them a check for their share of the transaction. I would expense that as cost of sale.
so are you suggesting everytime i receive payment for other company who is partnering on machine i post it as owner's equity ? and i put machine as inventory under assets? when i sale i post sales, and repairs done to it as expenses and when i send 50% of gains to partner i make journal entry to credit the owners equity account and debit the inventory account?
@babu,
No, it would reduce inventory cost. The machine that is being held for sale would go under inventory. When you send a payment to your partner you would expense that payment. Let's go through an example. Facts: You purchase a machine for resale for 10 and spend 2 for expenses. Your partner gives you a check for 6 (5 for the machine and 1 for expenses). You sell the machine for 20. You would give your partner a check for 10 (5 for cost 1 for expenses and 4 for profit). If you were doing just journal entries they would be
DR Inventory 10
CR Cash 10
To purchase machine (your cash)
DR Cash 5
CR Inventory 5
To post partner payment
DR Cost of sale 2
CR Cash 2
To post you paying for expenses
DR Cash 1
CR Cost of Sale 1
To post partner payment of expenses
DR Cash 20
CR Sales 20
To post sale of equipment
DR Cost of goods sold 5
CR Inventory 5
To post sale of machine
DR Cost of sale 10
CR Cash 10
To post payment to partner
All else being equal your ending balance sheet
Cash 4
Inventory 0
Assets 4
Liabilities and Equity
Current profit 4
Total 4
Current profit computation
Sale 20
Cost -5 (inventory)
Cost of sale 11 (10 for partner payment, 2 for expenses, -1 reimbursed expenses)
Net profit 4
or
Sales price 20
Cost -10
Expenses -2
Gross 8
50/50 to each would be 4
ok i understand, how would i go about posting check from my partner? what account do i post that under?
Babu,
See the 2 entries above that have a description for partner receipt i.e debit (DR) cash. I'm just using a generic name for the accounts. You may have a different description.
Wow, thanks Mike!! @Mikeg