My question is a little different from others that have a store, I have items on consignment at a store.
Where should I list these sales/profits?
Should I list total sold, then the commission to the Consignor business? Example, $5,000 in sales, $2,500 to Business XYZ for consignment fees?
I am guessing I need the total inventory they have not sold and include it in my Inventory and do COGS on the items sold?
You say you buy product for resale, so your COGS is certainly going to be reported in the usual fashion:
COGS = Opening inventory (including unsold items out on consignment) + Purchases - Ending inventory (including unsold items out on consignment)
You report you sales as the sum of "My direct sales" and "Sales via consignment", a summary number that makes no distinction between who actually "made" the sale.
From an income tax standpoint it really doesn't make a whit of difference how you enter the transaction - $50 sales and no commission or $100 sales minus $50 commission - because both ways result in the same net business income and that's what's really important. Get your income properly stated and "presentation" just doesn't matter.
For YOUR OWN purposes it does make a certain amount of sense to record a $100 sale and a $50 commission as that gives you good visibility to how your use of the consignment channel affects your profits.
Here's what you do. IN COGS, your BOY inventory is what *you* paid for the items. Makes things easier for you, since that's what you do for all of your inventory you purchase anyway.
Then your COGS (Cost of Goods Sold) can go one of two ways with the consignment sales.
- You can include only the amount you received from the consigner, or;
- You include what the item actually sold for. Then you report the consigner's cut of the sales price in Other Costs to Prepare for Sales. Now you might be thinking that would be in the Cost of Labor box, but no. If you enter it in the Cost of Labor box, then the IRS is expecting you either have employees (which you don't) or you issued 1099-MISCs to your consigner. (The 1099-MISC would only be required if your cost of non-employee labor was more than $600 to any one individual. So if your consigner's cut is less than $600, I personally would go ahead and enter it in the Cost of Labor box.)
That scenario is why I really even asked the question. I had read about someone that set up book deals for writers with publishers, and it really got complicated with duplicate filing, but in the end, if you were able to follow the trail, it made sense. The publisher 1099 the middleman, middleman 1099 the writer, the writer 1099 the middleman. Each was accounting for the whole $50k, then writing off part as expenses.
I think I will go the simple approach and just claim what I received and add it to the Income section and make it something like Consignment sales.