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    lillostfae's Avatar
    lillostfae Posts: 1, Reputation: 1
    New Member
    		  
    #1

    May 4, 2007, 10:02 PM
    How do I record a journal entry when a customer pays for a product I don't have yet?
    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!
    venugopalarao's Avatar
    venugopalarao Posts: 14, Reputation: 1
    New Member
    		  
    #2

    May 4, 2007, 11:08 PM
    Quote 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!
    Cash a/c dr
    To customer a/c
    venugopalarao's Avatar
    venugopalarao Posts: 14, Reputation: 1
    New Member
    		  
    #3

    May 4, 2007, 11:10 PM
    Cash a/c dr
    To customer a/c

    (being the advance on the sales order received)
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
    Ultra Member
    		  
    #4

    May 5, 2007, 12:49 AM
    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
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