Accounting for 'Pass through revenue' on behalf of another party - Suggestions?
GeoffW Member Posts: 1
In this scenario, there are 3 companies:
3. End user/final payer
Manufacturer is not licenced to sell in the end user's geography, so bills End User through Agent (which holds appropriate licence to sell).
- End user invoiced $100 by agent
- End User pays $100 to Agent, for which the Agent earns $30 commission
- Agent remits $70 to manufacturer
As the Agent neither earns nor retains $70, how is this treated in Chart of Accounts? Presumably, as the $70 is a direct 'pass through', only $30 should be shown as revenue, so how should these amounts be treated?
Is this a situation where a 'suspense account' (my terminology) might be used by Agent to hold the $100 invoice amount until the $70 is transferred to Manufacturer, then Agent transfers the remaining $30 to revenue?
Or am I unnecessarily complicating things? (My objective is to avoid paying income tax on the $70, if it would be shown as revenue). One school of thought is that the $70 would not be taxable as it's remitted to Manufacturer, and that deduction from the total $100 revenue reduces the tax liability.
Perhaps my question is more one of Chart of Accounts structure and operation in a sales transaction, which is a subject of which I'm not experienced.
edited November 6, 2020 in Wave Discussion