Help required in accounting entry

Hi,

I have a partnership firm naming K. I have taken a dealership of S pvt ltd.

In my agreement, if i make sale to H pvt ltd, I get a commission of 10% on sale. As per terms, when H places order to S, my firm K make 100% advance payment to S for purchase made by H .

On purchase by H, S issues a debit note in name of my Firm K (of PO amount plus commission). And when H makes payment against purchase to S, S issues a credit note in name of my Firm K. Please advise accounting entries required to be made in my books for above

 

Replies (2)
Quick Summary
This discussion seeks assistance with accounting entries for a partnership firm acting as a dealer. The user needs to record transactions involving commissions on sales, advance payments to a supplier, and the issuance of debit and credit notes between parties. Various accounting treatments are proposed to accurately reflect these complex transactions in the firm's books.

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Bills receivables a/c

Commission receivables a/c

To H a/c

(Invoice received from H and recorded it as purchases on accrual basis)

Purchases a/c

To Cash a/c

(Paid 100% cash for the above order to S)

Bank a/c 

To Bills receivable a/c

To Commission receivables a/c

(When money is received from H to K)

These are the entries in your books. 

Your credit note sent to H from S is due to purchase returns. Otherwise, it is always a debit note you will receive from S to all customers.

Refer to bills of exchange journal entries for further clarity because the above entries needs further adjustments in regards to H account after he pays cash. Eg. in the example, K is entitled only to commission and should record his variable pay. However, if we imagine that K is actually reselling the goods to H,

H a/c

To Bills receivables 

To Commission receivables a/c

a reconciliation should be done for the above because both of the above receivables are credited and banks should b debited. 

 

 

 

 

 

 

 

On a second thought, to simplify the process,

Debtors H a/c

To Credit Sales a/c

(invoiced recorded and sales recorded in income statement)

Purchases a/c 

To Cash or creditors S (payables) a/c

(purchased goods or paid in advance to S)

Bank a/c 

To Debtors H a/c 

(cash+commission received in full) 

This should be sufficient for the time being I hope. 

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