If you sale inventory on credit to a customer as a sole trader or Owner gets inventory without paying.
How can you record such a transaction?
Do you mean giving a customer inventory goods on consignment? Have you read the guides about inventory and have you searched the forum for consignment?
Yeah, I have read the guides.The option I saw is to create a sales invoice.
I have noticed when you create a Sales invoice, it reduces the inventory quantity but does not add the amount of value owed by the Customer to the Customer accounts receivables. I was just trying to figure out if there is another way
An invoice always adds to the amount owed by that customer so I don’t know why you say it doesn’t. Please show the edit screen of the invoice and of the summary page.
First you have to define: What is the actual transaction you are trying to record?
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The inventory item has a real value.
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The customer or owner takes the item of value from the business.
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Who or what pays for the item. A loan, a marketing budget, Owners drawing, white collar theft?
On the customer, it shows or adds the invoice amount.
I thought on balance sheet or summary, the amount will appear under Accounts Receivables.
If it adds the invoice amount to what the customer owes, it also adds to accounts receivable on the summary page. But you haven’t posted the screenshots that I asked of you so it’s impossible to see what’s wrong.
It must be an issue with my DB or business account setup.
From what you highlighted, I have created a new business and did a simulation, the transaction was appearing on account Receivables
@awmhove, you started this thread with two questions:
- How to record sale of inventory to a customer on credit (as a sole trader, which is irrelevant, because the procedure does not vary with different forms of business organization).
- How to record an owner taking inventory without paying.
Then, in your next post, you revealed you had already discovered the answer to question #1 was to create a sales invoice. But you introduced a problem, namely that the invoice did not add to Accounts receivable. Let’s call that question #3. You marked the response by @Mark that an invoice always adds to the amount owed by a customer as a solution. But he didn’t give you a solution, just told you the facts, which don’t match what you said you were seeing.
You never provided the screen shots @Mark requested, but you nevertheless concluded there must be an issue with your database or business setup. That leaves us in the following situations on the three questions:
- You already knew the answer to this, according to your second post.
- No one has addressed this.
- You concluded, without evidence, that you have a problem. But you already knew that or you would not have opened this topic.
So I don’t believe you should be satisfied with the results of your inquiries. Let’s see what we can do about questions #2 and #3.
Question #2
When an owner takes inventory for personal use, there are at least five ways to record the transaction:
- Zero value sales invoice. With this option, you create yourself as a customer, issue an ordinary sales invoice, but change unit price(s) to zero. This is not a good option if you have to pay tax on market value of the item even though you don’t pay for it.
- Market value sales invoice. This is the best option when such transactions are taxable under local law. And it avoids any potential audit problem by preventing someone from accusing you trying to hide transfers of inventory for personal use. It also avoids any intermingling of capital with inventory accounting. Of course, you must then pay the business to clear the receivable.
- Receipt. Avoid the extra step of a sales invoice and simply pay money to the business. This has all advantages of the second option, but is less work.
- Inventory write-off. This transaction records a non-revenue reduction of inventory. You need to establish a suitable expense account to capture the value of the inventory written off. Tax issues are difficult to resolve.
- Journal entry. You can debit your capital or owner’s equity account, depending on how you structured your chart of accounts, and credit Inventory on hand. A journal entry allows you to resolve tax issues, if any, but not as conveniently as a sales invoice. It has the advantage, though, of being able to handle the situation where tax must be assessed on market value instead of the zero sales price.
All things considered, the third option is the most straightforward. Just pay your company for the item it purchased. One way or another, that is what you are doing, regardless of the method.
Question #3
There are situations where the balance of a sales invoice does not and should not add to Accounts receivable:
- Automatic application of existing customer credit to a new sales invoice.
- Assignment of the customer receiving the sales invoice to a custom control account other than Accounts receivable.
Both situations could have been discovered if you had provided the requested screen shots. So please do that now. Give us screen shots (from the original business, not the test business) of Edit screens for (a) the customer involved, and (b) the sales invoice you said did not show up in Accounts receivable.
Finally, in the future, please limit posts to a single topic. As you can see from this discussion, multi-topic threads are easily sidetracked. So when you say something is a solution, forum members don’t know what that applies to or how the solution was achieved.
Seems I didn’t ask clearly in a way that was understood. Let me clarify and post screenshots.
The main question was to record the sale of inventory on credit to a customer or owner. Which I discovered I had to create a sales invoice. Which was fine with me.
My next concern was after creating the sales invoice, the record was not added to the accounts receivables on balance sheet under the same customer. Please note, there is only one customer.
I have uploaded the:
- Sales Invoices I created
- Customer’s transactions (From customers Tab)
- The Accounts Receivables total on balance sheet (same customer)
- Accounts receivables transactions on balance sheet (after clicking on balance for same customer)
Now I see “Cash basis adjustment” which i need explanation.
I hope this is clearly explained…
@awmhove, you did not post the screen shots I requested. When moderators ask for screen shots, it is for a specific purpose. Other information is often a distraction. Much of what you posted is not helpful. So please post the screen shots I requested in post #11.
Nevertheless, we can learn a few things from this extra information:
- You posted a K 50.00 payment from your Cash Box account to Accounts receivable. Why did you do this? From an accounting perspective, this transaction tells Manager that you gave cash to your customer, Anthony, expecting Anthony to pay it back. Please explain what this transaction actually was and post a screen shot of the Edit screen for that payment.
- You may have set up the Summary page for this business for cash basis accounting. When you do that, income is not recognized until you receive money against sales invoices from the customer. Click Edit on the Summary page and uncheck the box to change back to accrual basis accounting:
If you don’t want to use accrual basis accounting, don’t expect Accounts receivable to be affected by sales invoices. From the little bit of the Summary page peeking out from beneath the Accounts receivable drill-down, it appears the 50.00 balance in Accounts receivable shows only because of the highly unusual payment mentioned above, not because of any sales invoice.
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Spot on. The summary page was set up for cash basis accounting. When I changed to accrual based accounting, the sales invoices appeared on accounts receivables.
FYI, I had added the 50 to see if the payment will reflect on the accounts receivables as sales invoices were not appearing.
Thank you…
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