cancel
Showing results for
Did you mean:
Level 1

# Draw payments offset by commission due- How to make entries

I've looked through other posts and couldn't find the answer to this:

I’m using Quickbooks online.  Trying to figure out how to make entries based on the following scenario:

I pay employees a bi-weekly amount…say for example \$5,000 gross (taxes are withheld).

I track the amount I’ve paid the employee over time.  So say after 2 months, I’ve paid the employee approximately \$20,000 gross.

When that employee closes a transaction, the company receives revenue.  In this example, lets say the revenue received was \$50,000.

Our agreement with the employee is to pay 50% of the revenue (minus what he’s already been paid).

So in this example, the employee earns a \$25,000 commission but we’ve already paid him \$20,000…so he’s due \$5,000.

Trying to figure out the proper accounting for this.

The problem is if I immediately book the bi-weekly gross payroll as an expense at the time I pay it out, then my P/L isn’t truly accurate (or at least doesn’t give an accurate representation of the business).  In the first month, I would have shown a \$10,000 loss (I paid the employee 10K but received no revenue) when in fact I didn’t really lose \$10K…it’s still “owed” by the employee.

The goal is to have a P/L that’s representative to the real financial health of the company and also to track the balance of the draws.

Seems that whenever I pay an employee their bi-weekly check, that should be a balance sheet item (asset…due from employee).  That way, my P/L shows correctly (no net loss due to having no income but paying out checks) and my balance sheet shows correctly (tracks the amount due from the employee-draw).

So in our example, when \$50,000 in revenue is received, I’m trying to figure out how this part of the transaction is booked.  The end result is I want to show:

1.  Gross sales: \$50,000 (shown on the P/L)

2.  Payroll Expense: \$25,000 (shown on the P/L)

3.  Asset item (due from employee) accurately reflects that we owe the employee \$5,000

How can I accomplish this?

Thank you!

Level 15

## Draw payments offset by commission due- How to make entries

Payroll is an expense when it happens, so you are doing it correctly.

You need to use the employee for the sale in QB, some folks use a class to do that. Then you run a report on that class. That class report will show sales for the report period, and then you subtract the salary for that period and pay the balance due as other income in payroll.

I don't use QB payroll, but I seem to remember that you can use a class per employee there too.

In your example you list as #3 an asset account as being owed to the employee, it would a liability account instead - due to employee

Level 1

## Draw payments offset by commission due- How to make entries

Not sure that really answered my questions.  Looking for a way to track the draw balance at the same time accurately reflecting the P/L.  If I booked the taxed draw payments as an expense, the P/L would show a large loss month 1 and a large profit in month 2.  Trying to get the P/L to be accurate on a monthly basis.

Level 1

## Draw payments offset by commission due- How to make entries

Did you ever figure this out?

Level 13

## Draw payments offset by commission due- How to make entries

After the wages have been paid, you can move them to a prepaid expense asset account using a journal entry.  Set up an Other Current Assets account called 'Prepaid Wages' or 'Prepaid Commissions'.  Then, debit the newly-created 'Prepaid Commissions' asset account and credit Wages Expense for the wages you need to move from your P&L to your balance sheet.  When the commission is earned/payable, move the prepaids back to Wages Expense (debit Wages Expense, credit Prepaid Commissions) to match the expenses to the period that the income earned.  Presumably you know that this is acceptable for financial reporting purposes but not tax purposes.