How to account for commissions deducted before payment from third party vendor.

Good morning lankimle,

This is a really great question and definitely involves some delicate accounting practices. First we must know if you we are recording as Cash or Accrual. Depending on which accounting method you are using the answer will be slightly different.

Differentiate Cash and Accrual basis
https://quickbooks.intuit.com/learn-support/en-ca/accounting/differentiate-cash-and-accrual-basis/00/261411

Once we figure out if we are cash or accrual, we will begin by creating a commissions fees account in our Chart Of Accounts. If we are using Cash Accounting we can create an expense account. It is also acceptable to use the same Cost Of Good Sold Account as the commissions are directly involved with the goods or services. If we are using Accrual, we will want to record the expense with an offsetting liability account for a commission in the same period as you record the sale generated by the salesperson, and when you can calculate the amount of the commission. If done correctly we will be wanting to see a debit from the commissions account, and then we will see a credit to the commission liability account, which should be considered as a short term liability.

Add to or edit the Chart of Accounts
https://quickbooks.intuit.com/learn-support/en-ca/accounting/add-to-or-edit-the-chart-of-accounts/00/261383

Once we have our account created in our Chart Of Accounts for our commissions fees, we can create a Non-Inventory item for our commission fee & assign our commission fee account to that item. This gives you the ability to either use our Category Details section (Assign the account directly) or our Item Details section ( Assign our non-inventory commission fee item) when creating our expense transaction for the commission fees.

Add product and service items to QuickBooks Online
https://quickbooks.intuit.com/learn-support/en-ca/products-services/track-your-services-or-non-inventory-items/00/365061

Once we are done creating both our commissions fees account in Chart Of Accounts, and our Non-Inventory Item for our commission fees in our product and service list, we are ready to receive payment for our invoice. When you receive payment on your invoice, assign the payment to undeposited funds and fill out the rest of the details as per usual. We will want to take the full payment of the invoice not including the deduction of our commission fees.

Second option here is to add a commission fee line item within the invoice to show the deduction, however, most accounting professionals would want to see the two separate transactions rather than within the invoice. If you use the invoice method, your dollar amount will be a negative number to deduct from the invoice total. We will also assign out commission fee non-inventory item for this line item deduction.

Record invoice payments in QuickBooks Online
https://quickbooks.intuit.com/learn-support/en-ca/manage-invoices/record-invoice-payments-in-quickbooks-online/00/261924

Next we are ready to create an expense for our commission fees to go against our invoice. When we create our expense for our commission fees, ensure you have assigned to undeposited funds. Then save and close.

HOW TO RECORD EXPENSES IN QUICKBOOKS
https://quickbooks.intuit.com/ca/tutorials/expenses/

Once we have our invoice payment and our expense assigned to undeposited funds, we can now create our bank deposit by selecting +NEW & Bank Deposit. In our Bank Deposit batch creation, we will assign our commission expense against our invoice. We can start by selecting our invoice payment then selecting our commission expense to ensure the grand total at the top right hand corner is the correct total. Before we save and close we will want to review the following:

* Assigned Account (Pick the correct account this transaction is taking place in)
* Date (Date should match what is on your statement)
* Tag (Assign a Tag if you are making use of the awesome new feature :D)
* Amount (Review amount in the top right hand corner to ensure it matches the amount on your statement)
* Transactions (Review selected transactions, in this case should be invoice payment and commission fee expense as dome dollar values could be recurring and we might have accidently picked an incorrect invoice payment)

Once you have reviewed the above we can Save and Close and this Bank Deposit is now ready to be matched if your accounts are connected in the Banking Tab area. The match should automatically be applied, but if for whatever reason it did not we can select "Find Match" and manually match the transaction from our Under Review, to the Bank Deposit we just finished creating.

Categorize and match online bank transactions in QuickBooks Online
https://quickbooks.intuit.com/learn-support/en-ca/banking-currency/match-and-categorize-bank-transactions-in-quickbooks-online/00/262536

I truly hope this helps. I hope you have an awesome day today!

Kindest Regards,
Lourdes Fernandez