Q & A : Sales Commissions

Brandy asks:
Q: I did a couple of shows where I paid a commission to the store. Not sure how to log these. I paid commission in cash on one and the other one took it out of sales.

How to Record Sales Commissions in Xero

A: Usually, this “commission” is considered the discount from retail to wholesale when it’s being paid to a store and not a sales rep. Here are 3 ways to handle this. See which scenario fits you best.

1. If it is over 30% off of the sale price, this is no longer a discount, but the price is now Wholesale. Record the Wholesale Price (or the amount you actually earned) as the Sale amount instead of the retail price. Use the Wholesale Revenue Account and the Wholesale No Tax (exempt for resale) tax rate if they collected and will remit the sales tax.
2. If you want to see the breakdown, you can enter one line as the retail price and the second line as a commission with a (-) negative amount paid as the commission. Use the same Sales Account, so that it decreases the Sale price (revenue). Again, if they collected the sales and will remit sales tax, use the Wholesale No Tax tax rate.
3. If it is less than 30%, then it is more like a true commission, and you’ll want to split out the commissions from the sales. On a separate line of the sales invoice or Receive Money transaction in the bank account, you’ll have one line with the sales collected from the show and the next line will be a (-) amount for the commission paid; use the Admin + Merchant Fees expense account, which is the account used for credit card processing fees and Sales Reps commissions as well to record the selling-fee cost of making the sale. If you do a lot of trunk shows or have a dedicated team of Sales Reps, you would have an independent account for just the Sales Commission, as opposed to just having a few trunk shows or paying small commissions throughout the year where you can bundle them in one Selling Fees account.

Tip: You can always run reports to see the detail or amounts paid to one Store or Rep because you’re recording each transaction to their contact name. This can be done through the Income or Expense by Contact Reports.