Discussion:Expense Classification

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ETax847 (talk|edits) said:

December 5, 2012
I have a client who is an S-Corp. They run a ticket business similar to ticketmaster. If they sell a $100 ticket for an event, they keep $20 and pay the venue $80. How should this $80 payment be classified / treated?

RoyDaleOne (talk|edits) said:

5 December 2012
COGS

Podolin (talk|edits) said:

5 December 2012
Do they "own" the $80 ticket before they "sell" it? Or do they sell it on behalf of the owner, in return for a $20 commission?

Pegoo (talk|edits) said:

6 December 2012
I say COGS too =)

DvilleCPA (talk|edits) said:

6 December 2012
The client is acting as an agent for a third party. I belive that the correct method is to credit income for $20 and Credit due to third party for $80. It is like collecting sales tax for the state. Not a P&L item.

Podolin (talk|edits) said:

7 December 2012
I'm with DvilleCPA.

ETax847 (talk|edits) said:

December 7, 2012
Thanks guys for the clarification. One more question on this topic, what line on form 1120s would this "credit due to a 3rd party" be found? Would it be line 19 "other deductions"? Thanks for all of your help.

Rkrcpa1 (talk|edits) said:

7 December 2012
Credit due to a 3rd party would be on the balance sheet

Noj (talk|edits) said:

7 January 2013
For income tax returns and the new 1099-K I would make sure the full $100 is in gross receipts. Although the federal has said preparers do not have to reconcile 1099-Ks they have said they will use them to see if gross receipts may be under reported..

Accounting for books - if it is a true consignment basis that means your client does not have to pay anything if not sold I think that means he never has taken ownership and the risks of it. For BOOKS the $20 income seems correct then. If he bys the ticket to ultimately sale - he owns the ticket and purchase price would be the cost of sales and whatever he sold it fore would be the sales...

Natalie (talk|edits) said:

January 21, 2013
". . . reverse EF chrg - not billed by Lacerte. . . This could be a problem in places like Hawaii that base tax on the gross receipts amount. I don't know if that would apply to other states or not.

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