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brainstewn
Level 1

Properly entering Sales Commission income and categorizing

I'm committed to mastering Quickbooks properly.  In the past I would enter sales commissions in the check register.  I've read and watched tutorials on how to do this well using accounting principles and as Quickbooks intended it.

The company preferences are set to deposit to undeposited funds by default.

Following the Home page map I: 1) Create the invoice, 2) Receive the Payment, 3) Make Deposits.  Throughout this process I see no place to categorize the income as Commission Income.  the deposit in my check register indicates that the income is from the account "Undeposited Funds."  I try to edit the "From Account" and get the following pop-up "You cannot edit payment information in a deposit transaction. 1) Delete the payment from the deposit. 2) Go to the original payment transaction to edit it. 3) Redeposit the payment."

I've always assumed that it was important to delineate the type of income I'm receiving for reports, is that true?  Or do I just indicate in the memo field that this is a commission received?

Solved
Best answer December 10, 2018

Best Answers
qbteachmt
Level 15

Properly entering Sales Commission income and categorizing

"In the past I would enter sales commissions in the check register."

I don't know if this means it is Inflow or outgoing?


That means you are not entering this as income or expense using actual Transactions in the names of customers and vendors, but just "doing the banking" and that means you are using about 5% of the functionality of the program.


"I've read and watched tutorials on how to do this well using accounting principles and as Quickbooks intended it."


Good for you. Look at your Home Page, There are the workflows. Look at the Menus. There are your tools.


"The company preferences are set to deposit to undeposited funds by default."


You control this setting. There are about 200 preferences you shoudl review and set to meet your specific intent.


"Following the Home page map I: 1) Create the invoice,"

Invoice = unpaid sale, as of the date of this invoice = the charges. If you are paid for that same date as the charges, go directly to Sales Receipt, instead.


"2) Receive the Payment,"

If there are open AR charges, you have to use Receive, to apply the payment against the open charges.


"3) Make Deposits."


If you are not having the sales receipts and the payments post directly to the bank register, then you have them holding in UF. This allows you, for instance, to process that a customer paid you on time on the 15th and even some paid you on the 14th, but you didn't take it all to the bank until the 17th. It also gives you one entry in the bank register to match the entry on the bank statement, making it easy to reconcile. There is nothing worse than trying to compare 250 individual deposit entries in the bookkeeping to one entry on a statement, from various dates of processing, but in one deposit date envelope or one large ACH transaction template.

Bookkeeping is easier when it matches reality.


"Throughout this process I see no place to categorize the income as Commission Income."


That is because the Charge Items you use on the Sales Forms control the flow of the data to the accounts. The Deposit is NOT income. It is two or three steps AFTER income has posted. it is just banking, now. It goes like this:

Invoice (posts as income by using items) ==> creates AR balance ==> Receive Payment (reduces AR) ==> Funds for bank ==> Make Deposit


"the deposit in my check register indicates that the income is from the account "Undeposited Funds." "

It is part of the data flow. UF is the Prior Step. That is ALL this indicates, and is correct.


Deposits are NEVER income, by default. Funds are deposited to the bank for all sorts of reasons.


"I try to edit the "From Account" and get the following pop-up "You cannot edit payment information in a deposit transaction. 1) Delete the payment from the deposit. 2) Go to the original payment transaction to edit it. 3) Redeposit the payment." "


You will orphan the data if you keep trying to force it to match your expectation. This is a Program with an interface, meaning tools. The data is a Relational database. UF = "I am on my way to the bank, because of some previous step."


Never mess with UF. It is self-reconciling process.


"I've always assumed that it was important to delineate the type of income I'm receiving for reports, is that true?"

At this time, your existing method gives you NO data for sales reporting at all. I have attached some reports for you as examples of everything you are lacking at the moment.


"Or do I just indicate in the memo field that this is a commission received?"


Try this: Go to the No Company Open screen. Open one of the Sample Files. Look at their Items. Look at their Banking. Look at their Transactions.


Open Help. read on Work With Items. Read on Customer Sales.

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10 Comments 10
qbteachmt
Level 15

Properly entering Sales Commission income and categorizing

"In the past I would enter sales commissions in the check register."

I don't know if this means it is Inflow or outgoing?


That means you are not entering this as income or expense using actual Transactions in the names of customers and vendors, but just "doing the banking" and that means you are using about 5% of the functionality of the program.


"I've read and watched tutorials on how to do this well using accounting principles and as Quickbooks intended it."


Good for you. Look at your Home Page, There are the workflows. Look at the Menus. There are your tools.


"The company preferences are set to deposit to undeposited funds by default."


You control this setting. There are about 200 preferences you shoudl review and set to meet your specific intent.


"Following the Home page map I: 1) Create the invoice,"

Invoice = unpaid sale, as of the date of this invoice = the charges. If you are paid for that same date as the charges, go directly to Sales Receipt, instead.


"2) Receive the Payment,"

If there are open AR charges, you have to use Receive, to apply the payment against the open charges.


"3) Make Deposits."


If you are not having the sales receipts and the payments post directly to the bank register, then you have them holding in UF. This allows you, for instance, to process that a customer paid you on time on the 15th and even some paid you on the 14th, but you didn't take it all to the bank until the 17th. It also gives you one entry in the bank register to match the entry on the bank statement, making it easy to reconcile. There is nothing worse than trying to compare 250 individual deposit entries in the bookkeeping to one entry on a statement, from various dates of processing, but in one deposit date envelope or one large ACH transaction template.

Bookkeeping is easier when it matches reality.


"Throughout this process I see no place to categorize the income as Commission Income."


That is because the Charge Items you use on the Sales Forms control the flow of the data to the accounts. The Deposit is NOT income. It is two or three steps AFTER income has posted. it is just banking, now. It goes like this:

Invoice (posts as income by using items) ==> creates AR balance ==> Receive Payment (reduces AR) ==> Funds for bank ==> Make Deposit


"the deposit in my check register indicates that the income is from the account "Undeposited Funds." "

It is part of the data flow. UF is the Prior Step. That is ALL this indicates, and is correct.


Deposits are NEVER income, by default. Funds are deposited to the bank for all sorts of reasons.


"I try to edit the "From Account" and get the following pop-up "You cannot edit payment information in a deposit transaction. 1) Delete the payment from the deposit. 2) Go to the original payment transaction to edit it. 3) Redeposit the payment." "


You will orphan the data if you keep trying to force it to match your expectation. This is a Program with an interface, meaning tools. The data is a Relational database. UF = "I am on my way to the bank, because of some previous step."


Never mess with UF. It is self-reconciling process.


"I've always assumed that it was important to delineate the type of income I'm receiving for reports, is that true?"

At this time, your existing method gives you NO data for sales reporting at all. I have attached some reports for you as examples of everything you are lacking at the moment.


"Or do I just indicate in the memo field that this is a commission received?"


Try this: Go to the No Company Open screen. Open one of the Sample Files. Look at their Items. Look at their Banking. Look at their Transactions.


Open Help. read on Work With Items. Read on Customer Sales.

Anonymous
Not applicable

Properly entering Sales Commission income and categorizing

I have the same issue. I don't believe this answers the question of receiving a commission check from a vendor for reselling services, does it?  I can't enter an invoice or a sales receipt for an entity on my vendor list. Invoices and Sales receipts only apply to Customers, correct?

 

I have been holding the commission check until I'm ready to go to the bank. I then add the check on the "make deposit" screen, posting to my commissions account at that time. 

 

I don't like doing it that way because I often forget the commission check until AFTER I print the deposit slip, have to toss it, correct it, and reprint, thereby wasting a form. Is there a better way?  I would prefer to post the commission check when I receive it and have it populate the deposit as do the payments I receive from my clients, but have yet to figure out how to do this.

VivienJ
QuickBooks Team

Properly entering Sales Commission income and categorizing

Hi there, LynnBea!

 

Thanks for joining us here in the Community! Qbteachmt is one of the best Allstar (accountant) contributors here, and the answer provided is on-point and correct. Allow me to add up some information specifically to your questions.

 

Though both pertains to tracking commissions in the program, the poster's concern is a bit different from yours. He wanted to enter sales commissions, while you need to record commission checks from vendors.

 

Specifically to his concern, @qbteachmt thoroughly explained and suggested to use invoices or sales receipts instead of checks. You're correct; invoices and sales receipts only apply to customers and sales transactions. 

 

Since you'll want to record the vendor's side, you don't need them. Writing checks is still the best option for you. 

 

Generally, as part of the program's data workflow, the Undeposited Funds account is where you keep the checks. Once you're ready to put them all together in the bank's register, just deposit them. 

 

Ideally, all checks must automatically show in the Make Deposit window. Therefore, you should see a list of them right away. 

 

If your clients pay the commissions of the vendors, you can make it billable to them. The steps below can guide you through the process. 


First, create a bill for the vendor:

  1. Go to Vendors at the top menu bar, select Enter Bills.
  2. Enter other necessary details. 
  3. Add the commission expense under the Expenses column.
  4. Select a customer in the Customer: Job drop-down. 
  5. Click Save and Close

Second, invoice the customer for the commission:

  1. Go to Customers at the top menu bar, select Create Invoices.
  2. Enter the name in the Customer: Job field. 
  3. Choose the Select the outstanding billable time in the Billable Time/Costs box.
  4. Click Ok.

Once you receive the payment from the customer, record it in the Receive Payments screen:

  1. Go to Customers at the top menu bar, select Receive Payments.
  2. Enter other necessary details.
  3. Click Save and Close

Lastly, to pay the vendor for the commission:

  1. Go to Vendors, then Pay Bills
  2. Choose the Bill you've created.
  3. At the bottom part, select Check as the Method
  4. Click Pay Selected Bills

Check out these articles for more details:

These resources should guide you through the process. If you have questions, or for anything else, feel free to leave me a response below. I'll be around!

qbteachmt
Level 15

Properly entering Sales Commission income and categorizing

"I can't enter an invoice or a sales receipt for an entity on my vendor list. Invoices and Sales receipts only apply to Customers, correct?"

 

Anyone who pays you is your Customer. A Vendor can be both a vendor name and a customer name for the financial activities between the two of you, and you must Honor and use the right name for each function, as if that is two different entities.

 

You pay and report vendors for goods and services, for 1099-Misc. Not the Customer Name.

 

Customers pay you for sales of goods and services, and the commission income is paid to you by a customer name. Not the Vendor Name. Yes, you would use invoice or sales receipts.

BeaLynn
Level 1

Properly entering Sales Commission income and categorizing

Thanks! I knew this at one time, but had forgotten, lol. That's my solution!

wp318
Level 2

Properly entering Sales Commission income and categorizing

As the Brooker, I receive and deposit funds (Premiums) from a Group into a Trust Account. How do I transfer the money (premiums)over to the Insurance Company and receive my commission income, from the company, my commission is a % of the total premiums. HELP PLEASE.
qbteachmt
Level 15

Properly entering Sales Commission income and categorizing

@wp318

 

You asked your Own topic, and in fact, Multiple times. I recommend you go here:

https://quickbooks.intuit.com/community/About-QB-Community/Setting-up-a-company-file-for-an-insuranc...

acab585
Level 1

Properly entering Sales Commission income and categorizing

HI - follow up question on your statement below regarding anyone who pays you is a Customer. In my case, we have an agent that pays us commission on sales they made on certain customers. The previous bookkeeper records it as a deposit and I understand from above replies that this is the 'banking' side of it, and not the transactional. I want to record this properly going forward.

 

To clarify, I should create a new Customer name under our Agent name, is that correct? Then the process would be as I receive a notification of commission income, I will accrue in QB (either with a journal entry: Debit Commission Receivable, Credit Comm. Income)  and then when payment comes in, I receive it against Commission Receivable.

 

Thanks for all your help.


@qbteachmt wrote:

"I can't enter an invoice or a sales receipt for an entity on my vendor list. Invoices and Sales receipts only apply to Customers, correct?"

 

Anyone who pays you is your Customer. A Vendor can be both a vendor name and a customer name for the financial activities between the two of you, and you must Honor and use the right name for each function, as if that is two different entities.

 

You pay and report vendors for goods and services, for 1099-Misc. Not the Customer Name.

 

Customers pay you for sales of goods and services, and the commission income is paid to you by a customer name. Not the Vendor Name. Yes, you would use invoice or sales receipts.


 

FullSttopp
Level 1

Properly entering Sales Commission income and categorizing

I am hopping into this older thread because it is covering a workflow that I use daily, and which I have amended and modified over time.  In answering your now 2 year old question let me state that I am in the Literary Agency business, we receive payments from publishers, withhold our commission and then pay our author clients their net proceeds.  Here's what I do:

1. create a customer account for each publisher we work with, and a job beneath each publisher for each author

2. create an income item for company commission

3. create a short-term liability item for the funds due to client

4. create an invoice for that publisher:author where I have an income line for our commission, a line for any of our individual agents who have a piece of that project, and then the liability due to the author.

5. create a new vendor giving it the name "author"PMT and charge the corresponding short-term liability account for the amount payable

 

This process makes it easy to find any errors in my entry, and it allows me to check that the amounts payable are always properly allocated because every liability account should generally be 0.00 unless I am in the middle of the workflow.

 

Here's an example:

Joe Smith is owed $100 from Publisher X.

My commission is 15%

1. create invoice to PublisherX:Joe Smith 

line 1 MY COMMISSION (income account) = $15

line 2 CLIENT FUNDS DUE (author specific short-term liability account) = $85

2. create a bill to Joe Smith PMT 

line 1 CLIENT FUNDS DUE (author specific short-term liability account) = $85

3. receive payment to the specific invoice

4. pay client bill 

 

This process shows that income account increased $15, client liability account increased $85 and then decreased $85, and results in an invoice, bill and check which I can track.

 

Now I have a question for the QB world.  I am looking to amend my work flow to now include a second bank account in the process.  The new process will be:

1. funds deposited into account A

2. client paid from Account A

3. commission earned transferred to Account B

When I am creating the invoice to the publisher is there a way to record the commission amounts so that they are both income and marked for transfer from Account A to Account B in one step in the invoice?  Is it possible to create an intermediate account that accrues funds to be transferred so that I can make a transfer on a regular basis instead of having to do one transfer per deposit?

 

sher6
Level 1

Properly entering Sales Commission income and categorizing

This is the process if someone is selling your product and you are paying them a commission?  What about if you are selling products for someone and getting a commission?  example: OLG Lottery?  I sell lottery tickets and get a small commission but the sales are going into my register so I need to know how to make it so quickbooks knows that portion of the sale isn't mine only the commission I'm making is mine

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