"Bruce Raskin, CPA" <Braskincpa[at]wbhsi.net> wrote:
- quote -

So, if I am understanding this correctly, for 2005, the
money derived from the sale of the goods is considered
income but there is no deduction for the money that is owed
to the others (as if it was a payable). If I had $50,000 in
sales of my own goods and $5,000 in sales of consignment
goods (of which I "owe" $1,000 to others as part of the
consignment agreement), my income for the year would be
$55,000 with no offsetting deduction for the $1,000 owed.

Now, if in 2006 I pay the consignment amounts due to the
consignees, then it becomes a valid deduction and is taken
off of my 2006 taxes. In the example above, I would be able
to deduct the $1,000 payment of the liability.

Am I getting it or am I missing something?

Thanks for the help.

Roger


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Mr. Raskin is correct. When you sell an item on
consignment, you should increase cash (or debit cash),
increase commission income (or credit income) for your 30%
and increase the payable to the owner of the item (or credit
payables) for his/her 70%. Only the commission income
should be included in your net income. The portion you owe
to the consignee affects your balance sheet and has no tax
effect.

When you pay the person, you would decrease or credit cash
and decrease or debit payables or when you determine that
you can't or won't repay the consigneed then you would need
to credit income and debit payables.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Roger" <rwink[at]frontiernet.net> wrote:

- quote -

I think you have a problem. You have income on the
commission part of the sale, and a liabilty on the amount
owed to the people who sent you the merchandise for sale.
The consignment goods are not part of your inventory. The
property belongs to others. You should not be charging any
of the consignment money off. It is a liability, as I said
before, and would be so until you pay your friends. If you
never pay them, it would be income.

--
Bruce Raskin, CPA, P.C.
Braskincpa[at]wbhsi.net
Tax and accounting Services
Chandler, AZ

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I have a small collectibles business and, on occassion, sell
items for others taking a 30% commission and paying 70% back
to the original owner.

A couple of friends are allowing me to keep their portion of
the sale for an extended period while I get my business off
the ground. Currently, I have accrued those payables in the
year in which the sale was made (in this case, 2005);
however, the actual payment of the money may not occur until
2006 or 2007.

I am using accrual accounting as I have inventory.

I'm guessing the government may not be thrilled that I am
charging these consignment payments off but not actually
paying for one to two years. What are the rules for such a
situation? Can/should the consignment payment not be
expensed until the year of payment and how does that work in
an accrual system?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >