I work for a company where the customer has to pay me in advance before getting their product. I have to order the product from the wholesaler after I receive the money.

I sold a product for $14.84, $7.00 will be profit, and $7.00 and $0.84 in taxes are going to be sent to the wholesaler for the product. How do I record the entry for receiving the money from my customer without having to make this entry:

Cash 14.00
Sales 14.00

Cost of goods sold 7.84
Merchandise inventory 7.84

This wouldn't make any sense because if I did this entry I would have negative merchandise inventory, sense I haven't order the inventory yet. :confused: I thought that maybe it would be unearned revenue, but then I couldn't figure out how to get that to make sense either. Please help!

Quote:

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Originally Posted by lillostfae

I work for a company where the customer has to pay me in advance before getting their product. I have to order the product from the wholesaler after I receive the money.

I sold a product for $14.84, $7.00 will be profit, and $7.00 and $0.84 in taxes are going to be sent to the wholesaler for the product. How do I record the entry for receiving the money from my customer without having to make this entry:

cash 14.00
sales 14.00

cost of goods sold 7.84
merchandise inventory 7.84

This wouldn't make any sense because if I did this entry I would have negative merchandise inventory, sense i haven't order the inventory yet. :confused: I thought that maybe it would be unearned revenue, but then I couldn't figure out how to get that to make sense either. Please help!

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Cash a/c dr
To customer a/c

Cash a/c dr
To customer a/c

(being the advance on the sales order received)

When the customer sends you the money, you have not made the sale yet since you haven't done the work to earn the sale.

So, you:
Dr Cash 14.84
Cr. Unearned Revenue 14.84

Then, when you send the $7 to your wholesaler,
Dr. Inventory 7
Cr. Cash 7

Then, when you ship the product to the customer:
Dr. Unearned Revenue 14.84
Cr. Taxes Payable 0.84
Cr. Sales 14

Dr. COGS 7
Cr. Inventory 7

When you pay the government their money, the JE is:
Dr. Taxes Payable 0.84
Cr. Cash 0.84