10 Points for some Accounting Help! Commission and Revenue Contra Accounts?
by admin on Jul.03, 2009, under Personal Finance
I’m in an MBA accounting program and I’m stuck on two parts of my report:
1)A Fitness club offers credits toward next year’s dues for new member referrals. Management estimates that these credits will amount to approximately 10% of revenues for the up-coming year. Revenues are now in the range of $2.5 million annually.
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I want to set up a contra revenue account for these predictable referral credits.
What double entries would I make to set up the revenue contra account and once a referral happens what does the double entry look like?
Or am I looking at this all wrong?
2) Salespeople at the fitness center are paid every three months based on sales for that quarter. An adjustment is made the next quarter to their commission representing a deduction for non-payment of fees from the previous quarter which they had received commission for.
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So basically right now I pay them in full for all commissions and then next quarter I deduct from each salesperson’s commission whatever commissions they received on memberships that are not honored or paid for by the customer.
In order to improve my working capital I want to set aside some of their commission to cover these fairly predictable non-payments and keep the money in my pockets until we know for sure that a membership is being honored.
How do I account for this in GAAP???
If anyone could help I’d be really grateful, I’ve been stuck on these two for a while and unable to find anything online that helps…
Jeffrey
July 6th, 2009 on 12:20 am
Vincent
1) I would not set up a contra revenue account .
Just when referral will happen, you do DR the Revenue and CR Cash . But If you do, then do an accrual entry each month for 10% of the Revenue, DR Revenue (or contra revenue account), CR referral account on your BS, when you wil pay this money, you do DR referral and CR Cash.
2)This have nothing to do with GAAP.
You can pay commission from the applications taken, or you can pay commission when membership payed in full. From marketing point you pay commission from application taken, you can’t keep money, but you can change the rules.
Good Luck!