Thanks for the explanation. This is a straightforward situation. Begin with the understanding that your liability to the agent and your payment to them are not connected to the sale of Widget A from an accounting viewpoint, because they involve a different entity than the customer to whom you sold Widget A. So you cannot put the commission on the sales invoice. You also would not want to do that, because you do not want your customer to know about commission you owe or pay to a third party.
So, there are several steps. They are discussed under the assumption you are using accrual basis accounting:
- Create your agent(s) as suppliers. You will be purchasing orders for Widget A from them.
- Create a non-inventory item for the commission since it is the same every time. Set up the non-inventory item as something that can be purchased, with a purchase price of $3, posting to an expense account named something like Commissions paid.
- When you sell a Widget, raise a sales invoice in the name of your customer. This will debit Accounts receivable for the sale price and credit Inventory - sales for the same amount. It will also transfer the current average cost of the Widget A from Inventory on hand to Inventory - cost to record the cost of goods sold.
- At the same time, raise a purchase invoice in the name of your agent. Enter the non-inventory item for commission on it. This will have the effect of crediting Accounts payable for the agent and debiting Commissions paid. Note that this satisfies your desire to record the liability for paying the commission to the agent. Also note that the expense is recorded at the time of sale and raising of the purchase invoice because that is when it was accrued.
- If you decide you want more visibility into commissions owed, you could create a custom control account in Liabilities made up of suppliers. Name it Commissions owed. Assign all your agents to that control account. Then, commissions you owe will show separately from accounts payable to other types of suppliers.
- When you pay an agent, use a payment form. Post the payment to either Accounts payable or Commissions owed, depending on which you decide to use. This will clear the liability to the agent, but not affect the expense entry already recorded.
Let me add a word about cash basis accounting. If you use cash basis accounting, all the steps are the same, but income from your sale to your customer and the expense of your commission to your agent will not appear on the P&L until money is received or paid against the sales and purchase invoices.