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Accounting advice for agent/dealer type situation with an example

Hi

I have two clients, Company A and Company B, who are affiliate companies trading under the same name (dealer companies for a national service). Both of whom are centrally managed.

A and B both sell goods obtained from Supplier.

The national Supplier however only transacts and invoices Company A. Each delivery has a unique invoice, so there are no instances where an invoice has goods for both A and B.

Deliveries to A: Invoice is raised by Supplier to A.
Deliveries to B: Invoice is raised by Supplier to A, even though goods are directly delivered to company B.

Supplier will not invoice them separately, and as sole supplier for this national service, they will do as they please. But that is not the point of this discussion. The point is, Supplier will ONLY ever invoice A.

Supplier only holds A accountable for any amounts owing. Basically they won't deal with 50 dealers separately (lazy).

In terms of accounting, I'd like to know how this should be treated?

Further, I'd like to know what the best practices would be for Input Tax/Input VAT/Input Sales Tax purposes (hereafter just Input taxes)? In my region, Input VAT is claimable if the goods will be used to produce a sale which will generate Output VAT.

I have proposals:
__________________________________________________
Option 1
For deliveries to A, entries in A's books:
- Debit Purchases
- Debit Input Tax
- Credit Supplier

For deliveries to B, entries in A's books
- Debit Receivable from B
- Credit Supplier (because Supplier chases A for payments)

For deliveries to B, entries in B's books
- Debit Purchases
- Debit Input Tax
- Credit Payable to A

>> Note how B claims the Input Tax. The invoice from the Supplier is to A. Generally for B to claim the Input tax, A would have to invoice B separately and have the original invoice attached?
>> If this approach is taken, and A invoices B, is there any Output Tax implication for Company A?
>> Note that goods are delivered directly to B by the Supplier.
__________________________________________________

Option 2

For deliveries to A, entries in A's books:
- Debit Purchases
- Debit Input Tax
- Credit Supplier

For deliveries to B, entries in A's books
- Debit Purchases
- Debit Input Tax
- Credit Supplier
Now A invoices B as a sale
- Debit Receivable from B
- Credit Output Tax
- Credit Sales Revenue

For deliveries to B, entries in B's books
- Debit Purchases
- Debit Input Tax
- Credit Payable to A
__________________________________________________

What are your thoughts on the above?

Do you have alternate suggestions?

Ultimately, what is the correct accounting method given the constraints with Supplier?

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

What causes the affiliation between A and B? Same owners? Some common owners?

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