Sale or Return items


I’ll try and keep this as concise as possible! Any help will be gratefully received.

I have recently opened a store which sells products made by local designers, artist and makers.
All items are brought to the store on a sale or return basis and remain the property of the artist at all times. All we do is provide the space for them to exhibit their goods and facilitate the sale. We have an agreed selling price and commission fee with the artist. The artist will be on a 30, 60 or 90 day contract. When the contract is over they invoice us for the work that has been sold - minus the commission - and they collect their unsold goods.
What I can’t work out is how I account for this transaction. How do I deal with the invoice and the payment?

Happy to provide more clarification if needed!

Thanks in advance

Hi @remski50

Can I just clarify - when a sale is made, you invoice the customer for this at full price, and then the designer / artist invoices you for the full price minus commission? Is that right?


No. We don’t invoice them at all. We send them a list of the items that have sold. They then send us an invoice for the the amount after the 40% commission has been deducted.

Artist brings to items to the store.
After the agreed time period we send them a list of what has sold and what has not.

Item A sold for £100.
Item B didn’t sell.

We email this to them and they invoice us for £60. We pay the invoice then they come and collect item B from the store. No other transactions between us take place

In addition to that, in the client management area we set up a cash sales client and a card sales client. The daily total cash takings and total card takings through the till are put through there. The cash takings are banked then tagged to the cash client on the statement. The card payments are treated the same way.

The way you describe this it doesn’t sound different from any other retail business except that you don’t get invoiced by your suppliers until after you’ve sold the goods you buy from them. Your sales to the public are your income and you would raise a sales invoice each day based on the Z reading from your till, your invoices from the artists would be entered as normal purchases (to a cost of sales code like General Purchases), and the gross profit on your P&L is equal to the commission. You would probably need to do a few accruals at year end to assign the purchases to the same accounting year as the relevant sales (if you sold item X in year 1 but only paid the artist in year 2) but that’s all as far as I can see.

(I’m not an accountant, check with yours to be sure)

Thanks for your reply.

That’s how I’ve been doing it so far. I’ve only just received the first invoices from our artists and was wondering what code to use for them. Because we have not purchased the stock I didn’t think that it would be treated as a purchase of stock, I.E. an asset. Although we have an up-to-date stock list of the items that are in store, the goods are still owned by the artist and held on their own inventory until sold. We’re just the middle-man between the artist and a buyer, so I thought it would be treated more like an expense? What I’m looking for is the correct code to use when processing the invoices. Does that make sense? I’m just worried that I’m either missing something very important or it’s not as complicated as my mind thinks it is!

I run a retail shop, and the way I do it is to treat purchases of anything I intend to re-sell as “General Purchases”. It sounds to me like you would do the same, the only difference is that you’re selling items before you buy them rather than after.

I only ever use the “stock” asset code for end-of-year adjustments where I count up everything I hold in stock at the year end and journal it as credit “closing stock” (cost of sales) and debit “stock” (asset), and then a mirror image journal at the start of the next year for credit “stock” (asset) and debit “opening stock” (cost of sales). This makes the overall cost of sales for the year equal to the value of stock I started with, plus what I bought during the year, minus what I had left at the end.

You’d have to do a similar adjustment but the other way round - your year-end adjustment would be to debit general purchases and credit accruals (which is a liability) for the purchase cost of anything you’ve sold but not yet been invoiced for by the artist, then (auto-)reverse that journal at the start of your next year - in my case I’m using the “stock” code to represent things I’ve bought but not yet sold, in your case you’d be using “accruals” to represent things you’ve sold but not yet bought, if you see what I mean.

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Sale or return is not stock, you don’t own it ever, it’s not an asset. Sorry but that’s very bad advice.

There’s a thing called cash accounting. You account for the transaction when it happens not before.

@Paul_Courtier so how would you recommend recording this? Does the full sale price still count as turnover for @remski50?

(I’m genuinely interested in the answer here - I’m not an accountant and I wonder if my own handling of sale-or-return items has been wrong. Edit: if it makes a difference, in my case my turnover - excluding sale-or-return - is too high to be eligible for cash-basis accounting for income tax, and I deliberately chose accrual accounting for VAT because I take credit from suppliers but don’t offer it to customers)

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It sounds like you are a declared agent for various client contracts, which should state that you do not own any product sold and each sale proceed is not part of your turnover

So your business income is purely commission

If this is the case, the way I would record this in QuickFile, create a merchant account (say nominal 1251) on the banking page and name it (say: AGENT Account)

When you bank the money for the sales you tag those bank entries as a transfer to the AGENT merchant account, so that money is not part of your turnover.

When you pay the clients invoice you tag that bank entry as a transfer to the AGENT merchant account.

You then make an entry into the agent account for the commission amount and tag it as Commissions Received (nominal 4902) to that clients sales account automatically creating a sales invoice.

Your profit and loss will only show your Commissions as Turnover keeping you away from vat registration for a lot longer.

That is correct. All contracts state that the product remains the property of the owner. Our income is commission.

Thanks for your help, George_H. This sounds like what I was looking for, especially keeping the VAT man from the door for a while will be a great help.

However, I can’t work out how to do this without my P&L showing a minus figure!

I’ll show this to someone after the break and hopefully they’ll be able to work it out for me.

In the meantime, have a great Christmas!