Record taxable in-kind transfers of inventory

KN52 · ‎August 28, 2022

I'm using Quickbooks Online, and have a question about properly accounting for a taxable in-kind transfer of inventory.

In consideration of signing a new agreement, a customer will be paid in kind 100 merchandise items from a vendor. The customer will not pay any cash consideration for the items, but will pay tax on the wholesale value of the items received (their wholesale cost). The customer will take the items into its inventory at wholesale cost, then sell the items at full retail, keeping 100% of the proceeds and paying tax on the profit above wholesale cost.

First, how do I properly record the non-cash taxable income received by the customer upon receipt of the 100 merchandise items? I've created an income sub-account for these items, but can't figure out how to show the receipt of the in-kind consideration into this account.

Second, I've created a product category for these items (they are all the same product), but how do I show the use of the in-kind income to "purchase" the opening inventory of 100 items?

After searching online, the only Quickbooks posts I found dealt with charitable contributions, and the steps described didn't seem applicable. Please let me know the correct steps to follow in this situation.

Thank you!

Rainflurry · ‎August 28, 2022

@KN52

Set up the product with wholesale and retail prices. Then, record an inventory quantity adjustment to add the 100 items and assign the appropriate income account under “Inventory adjustment account”. Now, the customer has income recorded for the consideration received. When the customer sells the items, the retail price will be booked as income and their wholesale “cost” will be booked to COGS as appropriate.

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Rainflurry · ‎August 28, 2022

@KN52

Set up the product with wholesale and retail prices. Then, record an inventory quantity adjustment to add the 100 items and assign the appropriate income account under “Inventory adjustment account”. Now, the customer has income recorded for the consideration received. When the customer sells the items, the retail price will be booked as income and their wholesale “cost” will be booked to COGS as appropriate.

KN52 · ‎August 29, 2022

Thank you for the prompt and helpful response. It worked perfectly. Thanks again.

KN52 · ‎August 30, 2022

I have another inventory-related question I’d appreciate help sorting out. Again, I’m using QBO.

A licensor company is due $2,000 in product royalties from a company that manufactures products (t-shirts, etc.). Ordinarily the licensor just collects royalties from the manufacturer when the manufacturer sells the shirts. However, the licensor company also recently purchased $500 of the products for the licensor’s own inventory and resale. The licensor resold the products for $1,000. Instead of paying the full $2,000 of royalties owed to the licensor, the manufacturer deducted the $500 cost of the shirts purchased by the licensor, and paid the licensor the net amount of $1,500. The $1,500 has been deposited in the licensor’s bank account, and I’m trying to match it to the correct accounts/transactions.

What is the best way to account for the above transactions in QBO? I need to show the full $2,000 as royalty income and show the $500 as a purchase by the licensor of new inventory. (And match the deposit appropriately.). Those are the steps I couldn’t figure out (after trying a number of approaches). Once I’ve sorted out the foregoing, of course, I need to show the sale of the inventory ($500 COGS) for $1,000, but that seems straightforward.

Thank you.

AlcaeusF · ‎September 13, 2022

Hello @Rainflurry,

I have reviewed the solution you’ve shared and it's correct and accurate. Thank you for sharing your inputs to help address the issue.

We love to see members supporting one another! Have a great day.

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Record taxable in-kind transfers of inventory