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Expense recognition

Daron Haugh's Profile

Our vendor is selling a product to one of our customers direct. We are being asked to generate the order, the bill will come to us, we pay it and then the customer will pay us. There is no markup on this, period. I will recognize the sale accordingly as revenue, however I'm being asked to offset the revenue account with the expense recognition. In the end, our books will not recognize any expense and show the total sales from this at 0. I say this is wrong in every way, can someone either confirm my feelings or show me where I can go find proof this is okay and or proof this is not right. Thank you for your time and thoughts.



Seems there would be no P&L entries here, only debit AR from the customer and credit AP to the vendor. If there is no markup you are only acting as the middle-man collecting cash for the vendor and remitting it to them. Why can't the vendor manage the order directly with the customer?

Topic Expert
Jake Feldman
Title: Managing Director
Company: Global TaxFin Advisory Group LLC
(Managing Director, Global TaxFin Advisory Group LLC) |

I think it's more complicated. There are new Revenue Recognition accounting standards, ASC 606, that apply. In your case, I believe it boils down to whether you are taking risk or not. Yes would imply recording separately both revenue and COGS.

As Andrew says, the real puzzle is who and why is deciding this is how the vendor should do this transaction? If you are taking risk, which is probably the case if there's going to be normal invoicing among the parties, then why aren't you getting compensated for that besides the accounting question.


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