Accounts Process

Question asked by Emma Egan 8 years ago

Hi,

I was wondering if you could help me.

I am a rep for a company called FM World UK & my understanding is that I would be taxed on commission from sales.

I get order & payment from my customer so I assume this would be my revenue & I create an invoice & add money in.

I will then raise a purchase order to my supplier, FM World UK & add details of money out.

I then keep the difference between the amount on my invoice & purchase order as commission i.e. customer pays £5, I pay £2 & keep £3 which is my taxable income/commission.

Can someone please explain this process so everything is correct from when I receive order to when I input my commission?

Thank you

Emma

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5 Replies

Hi Emma

It sounds like you need more help in running the books than I or others can provide on here, have you looked through the online guides for this stuff?

If you're using the purchase order system in CB and sending them to the supplier then, as the bill arrives from the supplier you go to the PO screen and hit the Manage link and convert the PO to a bill to record the details off the supplier's bill. You can also attach a scan of that bill as an attachment.

If you are not sending a PO from CB to the supplier, I'd skip it and just create the bill in CB when it arrives.

It's the supplier bill that's paid off from the money out on the bank statement you've uploaded. Alternatively, you can go to the bill itself and use the Quickpay feature which puts the entry into the bank account as a payment. Because you have to do them one at a time, I'd not bother with the "money out" link on the bank screen to pay it off as this is just a one line bank statement, you are far better off uploading the bank statement (or using Yodlee to do it automatically) then explaining all the lines at once out and in.

The same procedure applies to sales orders and sales invoices, although, unless there's a gap between the order and sale, I'd not bother with SOs

Hope that helps

Best answer
8 years ago

Hi Emma

Although the end result is the same there is a lot of difference between accounting for a commission agent and a company that buys and sells goods under its own account and keeps the profit between the two.

The main way to differentiate the two is to ask, when a customer buys the goods are they buying from you as a business or buying from FM W UK, with you merely acting as an agent of the company? If the customer is yours you sell them the goods the money is yours, if FM W UK is selling the goods the money is theirs and you can deduct a % commission before sending the money onto them.

With a commission agent the sale & purchase elements are put to a balance sheet account, like a dummy bank account and the only income you show is the commission you charge the company. If, as I suspect, these are your sales and purchases then, as you say, you record the sales to a sales revenue account and the purchases to a goods cost of sales account and so your P&L shows a profit (before your expenses) that's kept by you.

Whether or not you use the sales and purchase order systems, the sales and purchases are only recorded as your income and cost of sales when you record the sales invoices and supplier bill.

Hope that helps

8 years ago

Hi Paul,

Yes I am a Business Partner so I have my own account with FM World UK & all the customers are mine.

I understand the invoice & purchase order systems & allocating payments but not sure where I record the commission.

Will this automatically be recorded & taxed?

This is the only area I am confused with.

Is this the profit you mentioned in your reply?

Thank you

Emma

8 years ago

Hi Emma - yes, that's right, your profit and loss account (in Reports) will show £5 as sales and £2 as purchases (cost of sales) leaving a "gross" profit of £3. Your business expenses then come off that and the resulting "net" profit, is what you pay tax on (ish).

Pure commission agents just show the commission as sales with no purchases so, as I say, they end up with the same gross profit.

Just to expand on that, probably the most important difference in the two is when you look at having to be VAT registered in that this happens when sales exceed £85K, you will reach this far quicker than a commission agent.

Hope that helps.

8 years ago

Thanks Paul,

I order in bulk for my samples so how do I link the Purchase Order to the Invoices?

Again, is this done automatically?

Same with payment allocation & bank statements.

As I am entering them manually, do I add payment reference to invoices?

I want to make sure the whole process flows correctly.

Thanks

Emma

8 years ago

Hi Emma

It sounds like you need more help in running the books than I or others can provide on here, have you looked through the online guides for this stuff?

If you're using the purchase order system in CB and sending them to the supplier then, as the bill arrives from the supplier you go to the PO screen and hit the Manage link and convert the PO to a bill to record the details off the supplier's bill. You can also attach a scan of that bill as an attachment.

If you are not sending a PO from CB to the supplier, I'd skip it and just create the bill in CB when it arrives.

It's the supplier bill that's paid off from the money out on the bank statement you've uploaded. Alternatively, you can go to the bill itself and use the Quickpay feature which puts the entry into the bank account as a payment. Because you have to do them one at a time, I'd not bother with the "money out" link on the bank screen to pay it off as this is just a one line bank statement, you are far better off uploading the bank statement (or using Yodlee to do it automatically) then explaining all the lines at once out and in.

The same procedure applies to sales orders and sales invoices, although, unless there's a gap between the order and sale, I'd not bother with SOs

Hope that helps

Best answer
8 years ago

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