Hi everyone
Please could someone help me out
My wife owns a salon and has self employed personnel who split 50% revenues made with my wife as "chair rent"
my query is, if the self employed persons take revenues of £100 through the card machine which feeds into the business account but only 1/2 of this revenue is "chair rent" and so the other half then has to be repaid to them how is this then recorded in her bookkeeping?
what I've done so far is make the transfer out of the business account and paid them there half of their revenue and left it at that and recorded the 50% value as income but where does the payment out get recorded?
i hope this makes sense and thank you in advance for any help you can offer
thanks
paul
Replies (8)
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Your question is not entirely clear (to me) but the payment you ask about how to record is just the amount paid into the business bank account which is not your wife's income, is it not?
50% revenue is direct cost
as stylist fee.
When all the money goes to your Bank you transfer 50% pay out to stylist account as stylist fee (as cost [self invoiced usually])
eg
Cr Revenue £1000
Dr Bank £1000
Dr Revenue £500
Cr Stylist Fee £500
Dr Stylist Fee £500
Cr Bank £500
I think I got it right with Dr and Cr. ;)
I am sure you got the idea..
I think your problem (and mine in not understanding you) is that you are not using double entry. By the time you have recorded 50% of the bank receipts as salon income you have already accounted for the payment you are asking how to record. It's not a direct cost, or an expense of any kind, it's just the reason why your wife's salon income is less than the sum received in the bank account.
A round about way
@iamtrainee
A bit of a round about way, I would do slightly different:
Dr Cash £100 - B/s
Cr Stylist Owing £50 - B/s
Cr Revenue (Chair Rent) £50 - P&L
Then pay out stylist (B/s):
Dr Stylist Owing £50
Cr Cash £50
In reality this would be multiple items aggregated together to a weekly or a monthly payment.
@wilkinson
the way you did it it shows the Revenue as £50 of the salon! which I believe is going to affect the VAT threshold if applicable..
can you please explain how it is not £100 revenue of the salon or the stylist who pays £50 rental effectively 50% of variable cost to the stylist..
I am familiar with IAS 18 revenue recognition and want to know your if this fits in agent commission example...
http://www.accaglobal.com/uk/en/student/exam-support-resources/fundament...
Think of it
[quote=iamtrainee]@wilkinson the way you did it it shows the Revenue as £50 of the salon! which I believe is going to affect the VAT threshold if applicable.. can you please explain how it is not £100 revenue of the salon or the stylist who pays £50 rental effectively 50% of variable cost to the stylist.. I am familiar with IAS 18 revenue recognition and want to know your if this fits in agent commission example... http://www.accaglobal.com/uk/en/student/exam-support-resources/fundament...
If it helps try thinking of it as the salon invoicing the stylist for £50 but each time being overpaid to the sales ledger by the stylist and having to make a repayment from the sales ledger as a result.The salon is in effect transacting with monies that are not its own and never were its own.
So each rental is:
Dr Sales ledger £50
Cr chair rental £50
Each receipt
Dr bank £100
Cr Sales ledger £100
And each refund
Dr sales ledger £50
Cr bank £50
At the end of the day the salon has:
Dr bank 50
Cr chair rental £50
And the stylist has:
Dr Bank £50
Dr chair rental paid £50
Cr sales £100
There is no commission here, it is merely chair rental calculated by dint of turnover and the saloon controlling all the monies received from said turnover to ensure they get paid the chair rental.
@iamtrainee
As you know under IAS18, revenue is the gross inflow of economic benefit during the period during the course of the entity's ordinary activity resulting in increases in equity.
Therefore in this case either:
- the ordinary activity of the salon is to rent space to self employed stylists, therefore the revenue is the agreed rental of 50% of all earnings from any stylist; or
- as you say, the salon is acting as an agent for the stylist, rather than principal, and should recognise 50% revenue as a commission received.
thanks guys for your
explanations. however I was not clear on one bit...
The client of the salon is invoiced £100 by the Salon who later keep £50 as chair rent and pay the £50 to the stylist...
I have found this manual which if followed properly to address my concerns ;) then only the rent is taxable revenue for vat...
http://www.hmrc.gov.uk/manuals/vtaxpermanual/VTAXPER69100.htm