USA Recording revenues for vehicle auction and brokerage business

[Ron Bhatti]

Hello everyone,

We have opened a car auction house and we also do some brokerage work. My questions is, when we sell a vehicle at our facility, as brokers, do we record the entire amount received for the car as revenue and deduct the cost of goods (Money that will be paid to the consignor) or just the brokerage fee that we received.

Some people that I have consulted advised on just recording the brokerage fee and not the entire amount of the vehicle. If that's the case, can I run the risk of getting audited because of such high transactions in my bank account but showing much lower revenues on my books?

Any help would be much appreciated

 

[smallbushelp]

If you are taking in a vehicle to sell on consignment, it isn't considered inventory and thus, cost of goods sold does not apply. There is nothing entered into the accounting system when the vehicle is received. When it is sold, you would debit cash for the full sale price, credit an income account for the amount of your broker fee and credit a liability account (maybe "consignments payable") for the amount to be paid to the consignor. Then when you write the check to the consignor, you debit the liability account.

Note that your company will be required to send a 1099 to each consignor that you pay. Be sure to get W9 forms from each one.

 

[Ron Bhatti]

Thank you for your reply

 

[smallbushelp]

You're welcome. If I was helpful, I'd appreciate a "Like."