Commission Received Entry?

Please let me know the correct way to make entry for commission received.
I am buying goods from ABC Company and selling them.
On 1 occasion my customer wanted direct billing from the manufacturer i.e ABC Company.
The order was procured by me ( PO in the name of ABC Company ) with ( 5% commission on the goods value agreed mutually by me and ABC Company ).

Goods Value : 100
Commission : 5
Tax Deduction at source : 0.50

I have recd. 4.50 in Bank account.

Note : The accounting year has changed but this commission is for the previous financial year. I would like to accommodate this commission in the previous year only but i have recd. it in this new financial year.

This will depend on whether your accounting is on cash or accrual basis. If accrual, it should be reported in the year earned. Whether that is last year or this year will depend on several factors, including when the goods were delivered. If they were delivered last year, then counting it as last year’s income is correct. If they were delivered this year, the decision rests on when the commission was irreversibly owed to you by ABC. If they didn’t deliver or owe you until this year, then it is this year’s income.

If you are doing cash accounting, it is income in the year in which received. There are no ways around this.

Bigger questions are who paid ABC? You or your client? And did you ever temporarily own the goods? It sounds like your customer paid ABC. In that case, all you have to do is Receive Money in your bank account and allocate the transaction to a suitable income account. For completeness of records, you may want to issue ABC a sales invoice for the commission amount and then receive the money against the account receivable.

The customer directly paid the Invoice dues to ABC Co. ( Accrual Basis )
Goods were delivered in the previous year. The payment was received by ABC Co. in the previous year.
I am getting paid commission for that invoice in the next financial year.
How to record Tax Deduction At Source ( ABC has paid .50 under my Income tax # )
This is kind of an advance tax for me while calculating tax for the previous year.
Please let me know where to create the accounts ?
What account is to be selected in the sales invoice ?

Any suitable income account that describes the commission. Or create a new account under Settings >> Chart of Accounts.

Sorry, I don’t know anything about your location or tax procedures. You will have to supply more information so someone else can help you.

The tax which is deducted at source (TDS) is deposited by the commission giver @10% under our Tax #. Now while accounting out tax liability, the amount which ABC Co. has already paid will become our advance towards the Income Tax department.

Assuming you want to record the income ($5.00 commission from your supplier) in the last financial year, the easiest way of doing this seems to be making a Sales Entry. Say the goods was delivered on 15 Nov 2015, simply create a Customer with the same details of the supplier (ABC company) and make a Sales invoice of $4.50. This will increase your Accounts Receivable by $4.50, decrease Income tax payable by $0.50 and also increase your Sales income by $5.00.

Fast forward to the current financial year, when you actually receive the money, simply allocate to the following accounts

dr Bank account - $4.50
cr Account Receivable - $4.50

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@nitinraheja, you have not said yet either what tax jurisdiction you are in or whether your company itself is using accrual or cash basis accounting. (Your mentioning of accrual basis seemed to apply to either your customer or ABC Company, neither of which makes any difference.) So I am not sure @Jing’s answer is correct.

First, in most jurisdictions that I have knowledge of, you need to record income in the full amount of 5.00. Otherwise, you will be understating your income. The fact that someone has paid tax on your behalf, if in fact this is a payment of income tax, and withheld it from your payment, is immaterial.

Second, the withholding of tax may not have been appropriate at all. ABC Company may be treating you like an employee rather than an independent company. We cannot tell from your information.

Third, your form of business organization may affect whether this withholding of tax is a business expense at all. If you are a sole trader, for example, that 0.50 may be a prepayment of personal tax, not a business expense.

Fourth, @Jing’s procedure for allocating the payment this year to the account receivable from last year is only correct if your company is using accrual accounting. Depending on the exact circumstances of the tax and your organization (as above), the amounts may not be right.

@Tut , I have created a sales invoice for 5 on the day the sale was made by ABC Co to the customer.
When i received 4.5 in the new accounting year in bank the same was adjusted against the sales invoice.
The balance .50 due from ABC Co. was adjusted by a Journal entry and creating a new account Tax Payable ( Income Tax ) under the liabilities head in BS. ( It is showing a negative balance now ). When we will account for the tax payable for the financial year which has been closed , will adjust the .5 as advance tax already paid. We are on the Accrual basis system. ( All involved parties ).

Since I don’t know your tax laws, I don’t know if this is correct. It could be.

:Instead of creating two separate transactions, you could have processed this in one transaction as follows:
Receive Money
1st line : Accounts Receivable : ABC Co : 5.00
2nd line : Tax Payable (Income Tax) : -0.50 (note the minus sign)
Total : 4.50