I have this challenge of having my liability account increase in value even though I expect it to reduce rather. This is the scenario leading to it, a customer paid for an application form and I allotted 10% to the agent who brought the customer, as shown below:
Now the amount went into the agent’s special account. And the control account in liabilities ie Agents’ Commission showed a negative balance.
However, when I made a cash payment of the commission to the agent as shown below, the liabilities account did not decrease but rather increased in value to -20 but the cash at hand reduced by 10(which is correct). Am I doing something wrong, please help.
Go back to basics. Your first screen shot shows a receipt from a Payer. Receipts debit the bank or cash account to which they are assigned and credit the account(s) selected for the line items. Because you made the agent’s commission negative, what would normally be a credit turns into a debit. A debit reduces a credit account, like your Agents’ Commision liability account. So after the first screen shot, the balance would be -10.
Your second screen shot shows a payment, which credits the bank or cash account and debits the line item account, again driving it more negative. After the second screen shot, the balance is -20, exactly as it should be.
The question is why you entered the commission as a negative number in the first place. You wanted to credit a liability account, so it should have been a positive number. How much did the customer actually pay? If they paid you 90, you should have split the receipt into two line items, 80 going to Application forms sold as income and 10 to Agents’ Commission as the liability. If they paid you 100, you should have split the receipt 90 and 10.
As an aside, some will say the commission should not be recorded as a liability to begin with. Especially if the sale was taxable, the full amount of the sale should go to an income account. Then, the commission could be entered as an expense to offset it, posting to an expense account. What you have done (even when corrected as described above) understates gross income. Depending on your tax law, that could be illegal.
But then again, there are a lot of agents that I want to track their commissions paid and pending individually, how can I achieve that using the income and expense accounts.
Unless you set up individual accounts, you cannot. There is no equivalent to special accounts for income and expense accounts.
Realize that not everything involved with sales, marketing, and supply chain management can be recorded in the general ledger. Frequently, other records must be kept. And not everything should be built into the chart of accounts, because that can make your structure overly complex.
A custom field on sales invoices identifying who sold something might be a simpler approach. Then you can get a report of Sales Invoice Totals by Custom Field and use that to calculate commissions.
When you receive the initial payment from the customer (say 100) you need to add two extra lines to take up the pending commission, one line for the P&L commission expense (negative amount) and one line for the BS Liability account (positive amount) so that they contra off and the total remains as the amount paid by customer.
