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Community Contributor *

How do I account for inventory purchased from customers in exchange for store credit?

Hello, I run a small retail S Corporation. We sell pets and pet supplies. We have been in business a few years but 2017 is the first year our data is in Quickbooks and I am trying to get everything organized for tax purposes. This has been a major project that's been put off far too long and I cannot afford a tax professional for the foreseeable future and so I'm trying to get everything squared away in the immediate term by myself (and hopefully with your help!).

 

I purchase inventory through wholesale vendors using a bank account but I also purchase inventory from customers and I pay them in store credit. I determine the retail value of the item and I give the customer 50% of that value in store credit. For various reasons I do not have a feasible way to track items purchased from customers and link that with the retail valuation and the store credit given. Store credit is sometimes used immediately but it is often saved for later use. I maintain a store credit file with each customer's name and the store credit balance. The customer's store credit balance is updated after each transaction. I use the store credit file to get a total unclaimed store credit at the end of each year. My point of sale tracks purchases made with store credit and so I have monthly totals for store credit used.

 

My inventory is tracked in my point of sale and based on some other guidance I found in the Community I have set up an Other Current Assets account (Inventory Value) and I input the total cost of inventory on hand at the end of each year. The attached screenshot shows the entries for 2017. The first entry is the value of inventory on hand at the beginning of 2017 (since 2017 is the first year my data is in Quickbooks). The first entry makes my 2017 beginning inventory value count as a COGS expense. The second entry is the number necessary to make Inventory Value account equal to the inventory on hand at the end of 2017.

 

In my mind, store credit used would count as a Cost of Goods Sold expense and the remaining unclaimed store credit at the end of each year would represent a liability. I have set up a COGS account for store credit used (Inventory Purchase - Store Credit Purchases from Customers). I have also set up an Other Current Liabilities account for unclaimed store credit (Unclaimed Store Credit).

 

My data entry process is as follows:
1. From the Chart of Accounts, locate Unclaimed Store Credit and click View Register.

2. Create a journal entry as shown in the attached screenshot for each month's store credit used.

 

When I run my EOY Profit & Loss report my total Cost of Goods Sold appears to be correct (it reflects the store credit used as an inventory expense) but my Balance Sheet shows the Unclaimed Store Credit liability account having a balance equal to the store credit used, when I believe I want it to show the amount of unclaimed store credit given by my store credit file. Continuing my logic, I think it's necessary to add a journal entry to the Unclaimed Store Credit liability account equivalent to the total store credit used for the year plus the amount of unclaimed store credit at the end of the year. Then, each entry for monthly store credit used will appear as a payment on the total store credit liability. However, I am not sure which account that transaction should reflect on.

Perhaps the issue that my logic regarding how to account for the store credit used and store credit unclaimed is incorrect? Otherwise, I understand that Quickbooks uses double entry accounting but I am having trouble thinking through what the second entry should be.

Let me know if you need any additional information or anything clarified. Thanks in advance for your time and expertise!

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Established Community Backer *

Re: How do I account for inventory purchased from customers in exchange for store credit?

Hi,  algaescrubber

To track and record transactions for Store credit

 

01.When Store credit is issued use bill screen and create Bills e.g 2000

Create a Vendor called Mr.Lucas (customer name) - Store credit

Create an account called Store credit expense - an expense type account

Create an account called Store credit redeemable - other liability type account  

Create an Item called Store credit and link Income account to Store credit redeemable, Purchase account to Store credit expense.

Note: mark bill as billable 

 

02. Post a journal

Debit    A/P ( select customer name Mr.Lucas - Store credit as well )  2000

Credit   Store credit redeemable   2000

 

03. Create Invoices/Sales receipts

enter invoices/sales receipts as usual and if you are using Store credit select item Store credit

or select from the right drawer and Add bill

Note: store credit amount enter it as the negative amount.

 

Chart of account > Store credit redeemable quick report will show the balance amount, for created store credit > Vendor balance details report etc.

Comment back for further clarifications / to discuss.

 

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