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Payment on behalf of customer

Others 943 views 6 replies

Panneerselvam

Accounts Officer

66 Points Posted on 02 February 2016

We are doing Yarn Sales Commission agency business. We are getting orders from customer and collecting payment from them and give to supplier. If any disputes in quality and quantity. The customer did not paid the balance amount. As per agreement we are the responsible to pay that balance amount. Example: Yarn supplied Rs.1 lacs. Yarn buyer paid Rs.90,000/- Balance Rs.10,000/- not paid due to quality problem. We paid Rs.10,000/- to yarn supplier on behalf of yarn buyer. My question is What is the necessary entry to pass this payment in our books of accounts?

Replies (6)

Ganeshbabu K

Audit and Tax Advisory

48564 Points Posted on 02 February 2016

this is expenditure for you so Dr.Expence Cr.bank/supplier

Panneerselvam

Accounts Officer

66 Points Posted on 02 February 2016

This is not our expense. We are getting Commission from supplier. If customer not paid any amount to supplier, we are liable to pay. This is in agreement. So, i need full explanation.

Ganeshbabu K

Audit and Tax Advisory

48564 Points Posted on 02 February 2016

commission received is income,. and you tell me nature of payment to supplier if it is not expence to you(in case of customer not paid to you) will you get this amount back at any time, if no it will be expenditure to you this is what i understood,.if it is not expence then what, can u say i am right or wrong

Panneerselvam

Accounts Officer

66 Points Posted on 02 February 2016

Ok, can u tell expense head? is it allowable expense by Income Tax?

Shivani Mittal

Practice

425 Points Posted on 02 February 2016

It will be treated as bad debt.

Hence, Bad Debts ....Dr

To Customer A/c

Regards

CA Shivani Mittal

Sivaramakumar

GM-ACCOUNTS

142 Points Posted on 05 February 2016

As understood from your query:

since you are not billing your client directly for sale made, you cannot consider it as a baddebts or expenses in your books.

Assuming you work on 10% commission on recovery of sale proceeds you may square off the debt payable by the client against your commission receivable from the supplier.(assuming you account only your commission transactions)