Accounting entries

Accounting
1

It’s been a few years since I was last ‘active’ on the forum.

I run a sole trader gardening business. I have close links with a local fencing company and have just recently had a request from one of my long-standing customers to have some new fencing installed in his garden. I chatted to my contact and the fencing company has provided me with their estimate. Using fictitious figures:

Fencing company estimate £1000

Commission cut for my business £50

Price to customer £1050

My business sends an estimate to customer for £1050

Cust accepts the estimate and the work is carried out

My business invoices customer for £1050 and he pays that.

Fencing company sends my business their bill and my business pays that.

Questions:

  1. Do I show the £1050 as a sale in my business books?
  2. When my business pays the contractor’s invoice, do I code that to nominal 5000 (cost of sale)?

Hope someone can help on these queries and clarify my thinking. Thank you

2

  1. Yes. The £1050 is your income, so it should be accounted as such. Raising this an invoice within QuickFile will automatically log this under the sales codes for you. Recording the sale (£1050) and the purchase (£1000), gives you your commission or “profit” of £50

  2. Anywhere in the 5000 - 5999 range is generally acceptable as you’re paying for this as part of your service (like buying raw materials). 5000 General Purchases is generally more than fine, but you can use more nominals, including custom ones, if you’d prefer to split it out into something more granular.

This is based on you sending the estimate to the customer. If it was a case of the fencing company paying a commission for a referral, for example, it would be slightly different.

Hope that helps!

3

Matthew, thank you for your help on this. Additional question: If I decide to withdraw the £50 (be that commission or ‘profit’) from my current account, would the bookkeeping entries be Cr Bank, Dr sales commissions?

4

Hello @robstedav

Additional question: If I decide to withdraw the £50 (be that commission or ‘profit’) from my current account, would the bookkeeping entries be Cr Bank, Dr sales commissions?

No, if you withdraw money from the business you would create a money out transaction on the bank and tag it it the Proprietors drawings account (Directors loan account if its a LTD company)

5

Maybe you missed it on my opening post, but I am a sole trader