We are a small art gallery. At least 95% of the art in the gallery is on consignment. I have no problems keeping the books for the consigned work and the payments due to the artists. Occasionally, we will work with an artist who tells us they don't do consignment but they will sell us the work at a "wholesale" price. This is where I am struggling.
How do I account for the purchase of the artwork (Expense Account? or Inventory Asset like Gallery Owned Art?) and then how do I deal with the income after the item is sold? Does this involve COGS? I may just be overthinking it.
I'll share some information about categorizing arts. You'll use the expense account for the indirect costs of your business. While you'll use the COGS account for direct expenses related to what you sell (raw materials). If you have doubts about the accounts to use, I recommend consulting your accountant.
Thanks for your reply. I'm sorry but I don't really understand what you are saying.
Your reply said "You'll use the expense account for the indirect costs of your business. While you'll use the COGS account for direct expenses related to what you sell (raw materials)."
If I buy a finished painting for $100 and subsequently sell it for $200 it sounds like you are saying I should use an expense account to record the $100 purchase and an income account to record the $200 sale. What if I can't sell the painting right away? How does the value of that painting appear on the books? (Is a finished painting considered Raw Materials? Is it really an "Indirect Cost"?