Accounting for 'Pass through revenue' on behalf of another party - Suggestions?

GeoffWGeoffW Member Posts: 1

In this scenario, there are 3 companies:
1. Manufacturer
2. Agent
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).
Example:

  • 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.
Tagged:
edited November 6, 2020 in Wave Discussion

Comments

  • AlexLAlexL Administrator Posts: 2,837 admin

    Hey @GeoffW , I'm afraid this is a little out of our scope as support agents. Because this is complex accounting, I'd highly recommend you reach out to a CPA or accountant who should be able to help you account for this correctly.

  • KimptonKimpton Member Posts: 77 ✭✭

    Your idea for a suspense account is on track.
    Create an Expense account called Mnfg Cost, or whatever you wish.
    Invoice your end user the $100 and record Sale when he pays. At this point you show a $100 income.
    Your manufacturer should bill you for outstanding amounts once per period, usually once per month. Pay the manufacture bill, in this case $70. At this point you show a $70 expense.
    Therefore your net taxable income is:
    Income 100 less Expense 70 = Net taxable Income 30

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