Commission based service business

When a collection payment comes in, you must classify it as a liability, not as income, because the gross money belongs to your customer.

Here are the steps:

1. Navigate to Lists, then select Chart of Accounts.
2. Click Account at the bottom left, then select New.
3. Select Other Current Liability as the account type, then click Continue.
4. In the Account Name field, type Collections Held for Clients.
5. Hit the Save & Close.

To record the Collection Payment as a Deposit, here's how:

1. Go to Banking, then select Make Deposits.
2. In the From Account column, select Collections Held for Clients, then enter the Amount.
3. Click Save & Close.

For more details, you can check this article: Record and make bank deposits in QuickBooks Desktop.

When you remit the funds to your client minus your commission, the payout is not an expense but a reduction of the liability you recorded. Your commission fee is your only income.

Since this touches on accounting classification and tax purposes, it is best to confirm the correct treatment with your accountant to ensure it aligns with your business structure.

If you have any follow-up questions, feel free to ask!

Thank you for that. How do I adjust the liability to be paid off? I do a journal entry and transfer the commission to an income account? Otherwise the liability will never be paid completely.