Accounting Question

Maybe someone with accounting experience can help me visualize this problem. Okay say you are a company that owes $30,000 to a vendor (AP). You cannot pay it but work out an arrangement with the vendor that they will bill your customer at your retail and apply the margin you would record as profit towards your AP balance. How would you journalize this? Obviously the Debit on your books would be to Accounts Payable but what would you Credit? Would you count this as revenue? You did not take hold of the product in your inventory, the vendor shipped directly to your customer. Anyone?

brianr Wrote: ------------------------------------------------------- > Maybe someone with accounting experience can help > me visualize this problem. > > Okay say you are a company that owes $30,000 to a > vendor (AP). You cannot pay it but work out an > arrangement with the vendor that they will bill > your customer at your retail and apply the margin > you would record as profit towards your AP > balance. > > How would you journalize this? > > Obviously the Debit on your books would be to > Accounts Payable but what would you Credit? Would > you count this as revenue? You did not take hold > of the product in your inventory, the vendor > shipped directly to your customer. > > Anyone? Where are you getting this from? JUst reading it I am very confused, if they got the vendor to bill and deal directly with the end customer then why would they apply their profit to the AP when presumably they would be getting the 30k plus their margin. In this case if the vendor can fulfill the end customers needs why is their even a need for your operation? I don’t know what your journal entry would be but for the vendor this is a weird case of consignment inventory.

i can’t figure out why they would do this either. i’ve seen a similar situation with something called a “drop shipment”. in the drop shipment, the vendor ships the product directly from there warehouse to your customer. you effectively act as a salesman, except that you assume the credit risk. in this situation, however, your vendor assumes credit risk. in any case, this is how i would book it. assume: the cost of the product they’re shipping is $100 and they will bill $130. since they are shipping it to your customer in satisfaction of a payable, it would only be appropriate to book this as revenue to you. (you kind of have to ignore the assumption of credit risk for this, though, which i don’t think any vendor would do.) i would book: dr ap for 30 dr cogs for 100 cr sales for (130) i could be wrong though, but this is how i would do it.

mlh97 - That was my thought but I am not sure you can recognize the “sale” as revenue.

the only reason you wouldn’t book revenue is if your vendor assumed the credit risk. other than that, if the only thing your vendor is doing differently is shipping the product to a different warehouse, there’s no reason not to book revenue. again, though, if the vendor is taking on credit risk, you’re nothing more than a glorified sales rep. if that is the case, i’d simply book it as some kind of “other income” for the amount of the payable they’re forgiving.