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Help required in accounting entry

Monika (Senior Team member) (87 Points)

28 June 2020

Hi,

I have a partnership firm naming K. I have taken a dealership of S pvt ltd.

In my agreement, if i make sale to H pvt ltd, I get a commission of 10% on sale. As per terms, when H places order to S, my firm K make 100% advance payment to S for purchase made by H .

On purchase by H, S issues a debit note in name of my Firm K (of PO amount plus commission). And when H makes payment against purchase to S, S issues a credit note in name of my Firm K. Please advise accounting entries required to be made in my books for above

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2 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 30 June 2020

Can someone please tell me why I am not able to login with my Facebook credentials?

Bills receivables a/c

Commission receivables a/c

To H a/c

(Invoice received from H and recorded it as purchases on accrual basis)

Purchases a/c

To Cash a/c

(Paid 100% cash for the above order to S)

Bank a/c

To Bills receivable a/c

To Commission receivables a/c

(When money is received from H to K)

These are the entries in your books.

Your credit note sent to H from S is due to purchase returns. Otherwise, it is always a debit note you will receive from S to all customers.

Refer to bills of exchange journal entries for further clarity because the above entries needs further adjustments in regards to H account after he pays cash. Eg. in the example, K is entitled only to commission and should record his variable pay. However, if we imagine that K is actually reselling the goods to H,

H a/c

To Bills receivables

To Commission receivables a/c

a reconciliation should be done for the above because both of the above receivables are credited and banks should b debited.