USA Prepaid inventory?


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Sale of inventory with markup to direct to consumer channel. I Record the sale on an invoice and subsequently record cost of goods sold. Monthly sales reporting of sale of inventory on direct to consumer channel sale is at an additional markup - the proceeds consist of the marked up price with the cost and other fees deducted. What do I do to record the difference in the purchase of inventory and the sale of inventory.
 
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BIG E

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You don't record anything.
You're attempting to learn just the bookkeeping without understanding the accounting function.
When a financial statement or tax return is prepared, the difference shows up as a gross profit, the way it's supposed to.
 
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I don't think I explained it right. I understand financial statements. Selling the inventory slightly over cost to the D to C channel. GP and COGS is recognized automatically. The inventory is held for sale by the D to C channel, and then the sales are reported to us monthly- with a deduction of the price they already paid us, a marketing fee and various fees ie shipping and we receive the net proceeds. Its like consignment but they are sent an invoice and they pay net 30 and then only deduct what they actually sold when remitting every month. If I record these sales again its like double recording the sale of the same inventory. Let me give an example. We sold inventory of 40k (their price) to them. The sale was recorded and inventory was shipped, COGS is recorded as well. GP shows up when the financial statement is produced. The inventory can last a few months depending on volume. So then for 1 month they sell at the marked up price 5000.00 for which they deduct the price they paid us and fees etc. I want to record the D to C sales at the gross and also the associated costs....But I think I have to record the original sale differently- like an inventory transfer.
 
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Unless the contract language says the 40k is nonrefundable with no exceptions, this is a consignment arrangement. As to how to record the 40k, it depends on whether the 40k is an advance or an advance on the security of consigned goods. In either case, you wouldn't record it as a sale since it's a consignment of goods. If the 40k is a straight advance then you would record that as Dr. to cash and Cr. advance on consigned goods. Then you would clear it when the related sales are recorded. If it's an advance on security of consigned goods, then you would clear the account in proportion to goods sold. So, if 63% of goods are sold by the consignee, then repay 63% of the advance.

If the 40k is nonrefundable, then that amount would be considered a final sale regardless of anticipated additional revenues from the consignee. In keeping with the matching principle of accounting, COGS to be recognized would be proportional to the amount of estimated total final sales revenue to be received. So, if total estimated final sales revenue is $50k, then the nonrefundable $40k is 80% ($40k / $50K) of estimated total final sales revenue. Thus, 80% of COGS should be recognized. The difference between COGS and $40k would be the gross margin. Of course it wouldn't be net margin since that would take into account the selling & admin expenses along with other expenses not related to cogs.
 

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