How do I correctly treat this transaction?

We receive money from clients and use part of that money to pay ticket issue agencies on behalf of the client. The rest of the money becomes our markup(profit). How do I properly record this:

  1. create an expense account called “money paid out to ticket issuing agency” and record the full amount received and post the amount paid out to the ticket issuing agency to the expense account.
    or
  2. create a liability account called “ticket issuing agency” and receive the money into it using two line item entry.
    Am a bit confused here?

Have you looked at Billable Expenses? Read this Guide: https://www.manager.io/guides/5503. The account setup is automatic. This is a perfect application of billable expenses, because you are not buying tickets for your business; you are buying them for your customers.

Yes I have, and I have been using it for some time now. I was thinking of another way to record, but I guess that’s the only way. Thanks @Tut

Well, it is not the only way. But I think it is the simplest.

Ok I think am good with the simplest. But can you enlighten me on the other option(s) anyway? @Tut

That would be to use ordinary income and expense accounts like Ticket receipts from customers and Tickets purchased from agency.

Ok. So a scenario where I get 1000 from a customer and I pay 800 out of that to the ticket issuing agency and keep the rest as profit. How do I record it using the expense and income accounts?

Enter a receipt for 1000 posted to the revenue account and a payment for 800 posted to the expense account.

@Tut Understood. But I want to record the 200(profit margin) as such into an income account to ONLY show total profit in ticketing. Am trying to find a way to achieve that using the income and expense accounts.

If you are passing the income and expenditure through a bank account it will be two separate transactions. You have to send the money to the ticket provider.

If you are paying out the cost of tickets via cash or some other odd way, they you may be banking the net amount so you would then enter the two items into the same receipt transaction, i.e.

Income ledger $1000
Expense ledger -$800 < note the use of the minus sign here.
The net amount will be $200 and both the income and expense will be correctly recorded.

The transaction will appear as a net $200 when you look at it before viewing the transaction.

It isn’t really $200 profit for most businesses anyway as there are usually other overheads running a business such as rent, insurance, office expenses and so forth and what’s left after that is actually the critical figure.

1 Like

You don’t post profit to income accounts. Profit is the difference between income and expenses. But, you could design your chart of accounts using groups and totals to show that portion of profit.

Ok. That will be great. I will try and design a chart of accounts to see if I will get the results I want. Thanks a lot everyone.

@tut is it prudent to post only profit margins to an income account and post the rest to billable expenses with regards to the nature of my business. So the total profit made on every ticket sales will be seen at a glance in a dedicated income account instead to posting the entire amount(billable+profit) to an income account.

From how I understand it, the profit is as a result of the ticketing business and therefore the ticket obtained from the agency is the cost of sales.

What you are doing in this ticketing business is pretty much what almost every organisation does in the world, buy something, add value or a service and sell it with a markup on the cost of obtaining what you are selling for the value added.

I believe you can use narrations and accounts to get what you want.

But there are standards in accounting and there are many on Revenue recognition as used in Ghana. The substance of the transaction is that, you make revenue from the ticketing business. So recognise the full revenue (ticket cost+markup). Then march it against your cost of sales or expenses on obtaining the ticket.

You can record the revenue with two different accounts but must all be under revenue or income (keep cost of ticket in one and the markup element in another).

This is the appropriate way.

Well noted and advice taken. Thanks.

I still think you should use billable expenses. Your profit on the tickets will automatically show in Billable expenses - markup.

You could achieve your specified requirement by structuring your chart of accounts, profit and loss side, starting from the top:
Income
Ticket sales
Less Expenses
Whole sale Tickets
Ticket sale Profit (a running total)
Other business income and expense accounts

However I suspect there are better ways of structuring your COA.
Would not tickets be better considered an inventory item and use the associated reports

Thanks @Patch but you indicated tickets sales profit(running total) after expenses, it should also be under income right?. Thanks again

no it is a running total maintained by Manager
eg you sell tickets for $1000 (gross takings income)
your buy tickets wholesale for $800 (business expense)
Running total shows $200 (profit on above transaction prior to other costs).

Note, this my interpretation of what I think you asked for but not how I would set up my books. As I guess you will sell more than one type of ticket.

PS
I have assumed you are actually buying tickets rather than being paid a commission from from an event organiser when you facilitate a ticket sale which is actually between the event organiser and customer (ie you never own any tickets or receive the full fee charged to the customer)

If the later was the case you would just have a
Ticket sales commission (income account)

@Patch yes it’s the later and I have done and maintained the accounts as commission received on ticket sales(income account). And also using billable expenses to record payment of ticket(exact ticket cost) on behalf of our clients. And then invoice and receive the exact cost of ticket + markup from the client.