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Accounting Procedure Help
bstephen777
Member Posts: 11
What is the correct accounting procedure for goods purchased for a client and charge a service fee? For example, I purchase $1000 worth of products for a client and I charge a fee for doing so. Say $200. The client must then pay me for the cost of the products plus my service fee.
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@bstephen777,
You would recognize 1200 of Sales and 1000 for Cost of Goods Sold i.e Purchases. If the actual financial transactions are going through a bank and connected to Wave. Then, you would categorize as sales and purchases.
@Mikeg,
Thanks for the response. So I should go into Chart of Accounts and create an income called "Sales" and an expense called "Purchases"? How does this work when I invoice the client? What I've done so far was create an expense category called "Sourcing Expense" ($200) and an income category called "Sourcing Income" ($1000). But I'm not sure if this is correct because in Wave it shows an income of $1000 when to me, the income that I've generated is $200.
@bstephen777,
The 2 accounts you mentioned are preset accounts already included in Wave when you opened it. If you are using Wave for invoicing, it should ask you what income account you want this to credit. You would choose Sales. When you pay for the item you are reselling, you would categorize as Purchases. So your Income Statement would have 1200 in sales and 1000 in Purchases.
@Mikeg,
I am using Wave for invoicing. I had renamed Sales to Sourcing Income because technically I'm not reselling, but providing a service. Where I think I went wrong is, I created the Sourcing Expense category under Operating Expenses, but I should have created Purchases/Sourcing Expenses under Cost of Goods sold. Correct? Thanks again.
Yes that would sound right.
@Mikeg,
Great! Thanks for your help. Really appreciate it.
Just a suggestion, since your income is only $200, and not $1200, you can also try the below methodology.
Create two accounts under Sales category:
— Goods Purchased on Behalf of Customers
— Sourcing Income
Under Create a New Product or Service, create two items:
— Goods - Select account as Goods Purchased on Behalf of Customers
— Service Charge - Select account as Sourcing Income
When you create invoice, you can show these two items seperate with goods as $1000, and Service Charge as $200.
When you buy the goods, you have two options:
1)
You can either create a manual transaction with Debit Goods Purchased on Behalf of Customer account and credit cash with $1000.
This way your goods purchased account should have a net of zero, and will not be shown in P&L. Only your service income of $200 will be shown in P&L report. And there would be no expenses in cost of goods sold category.
2)
You can create an expense account in Cost of Goods Sold category as "Cost of Goods Purchased on Behalf of Customers" and charge the cost of goods to this account as normal expenses.
This way, you P&L would show:
Revenue: $1200
COGS: $1000
Gross Profit: $200.
Hope this helps.