# Entering a job payment as store credit in QB...??



## mvmjeff (Sep 11, 2012)

Hey all,
I'm trying to figure out an accounting issue. I'm working on a LONG ongoing job where I'm being 'paid' in store credit. It's a lumber company and I'm working on their newest building, but they prefer to pay me in job materials (these materials are being used on this AND other jobs). I want to be legit! But I can't figure out how to do this in my QB company. Driving me crackers! 

Anyone else run into this kind of situation?? Thanks !
J


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## herbdavey (Feb 27, 2009)

You can probably do it a few ways. Let me ask first though, do you get an actual credit memo from company for services rendered and then can use to purchase lumber?


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## CarpenterSFO (Dec 12, 2012)

Subscribed.


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## EthanB (Sep 28, 2011)

I would have your accountant set this up as it will be easier than having them go in, after the fact, and change all the entries they don't like.

I imagine you could set this up as an asset account specific so that you could create invoices and receive and deposit "payments" into that asset account.

That said, this may not go over well with the IRS or your state tax department, depending on how you handle it. What's the point of doing a barter when you can both expense the other? The sales tax is the only obvious benefit that I see.


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## tedanderson (May 19, 2010)

It falls under Tax Topic 420 in the IRS list of tax topics, entitled "Bartering Income" which includes the exchange of goods and services. 

In short, what they are saying is that you are supposed to report the total fair market value of the lumber that you received during the year on the 1040 Schedule C. If you and the store owner agree on a certain amount of store credit that he is granting you, you are perfectly free to claim that as income and pay the higher taxes upfront on everything, however, due to constant changes in the industry, the fair market value can vary year to year so it's better to add up only what you received.


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## pcplumber (Oct 12, 2008)

Personally, I would not do any tax reporting for materials I basically get for free and then use on another job because you are not earning a profit by working for the materials. You only earn a profit after you use those materials and get paid in dollars if you eventually use all the materials within a taxable year. If I work 1 hour and you give me a water heater I don't make a profit. I only make a profit when I sell that water heater and get paid in dollars. If I store up materials and don't use them then I suppose I could get hit with a capital gains tax, but I would not let that happen. If that happened, I would not do work for materials.

If you insist that you have to make everyone understand, then I would create a separate bank account in QuickBooks and call it XYZ Credit. You enter the credit exactly the same as you would for credit cards, cash and checks and you call the category Income, Sales, or whatever you call your income now. At some point, you have to use that credit (materials) for something and you will have to have a zero balance in your account (zero materials). You want the checking account only for yourself so you can explain to your account what you are doing, but most-likely, it will not be entered into your regular book keeping because you do not earn a profit by trading materials for work. You only earn a profit from those materials after you install them on another job and get paid with real dollars.

Suppose, I trade work for $10,000 in materials and I use those materials on other jobs that gross $50,000. Since I already own those materials the records you send to your account will say: Gross Sales $50,000 - zero cost for materials - other expenses = $15,000. You don't pay income taxes on materials you worked for. You don't pay income taxes on materials when you did not mark up the materials for a profit and you don't pay income taxes for materials two times. You can't say I got the materials for a phantom amount and used them on a job for a phantom amount.

If you really want to be honest you have to show the income from your credit because your liability insurance is based on your gross sales. At the end of your escapade, your new checking account will have zero profit because at some point in time your account will have no more materials. All you are doing is taking material in from one job and sending them to another job. There is no profit that has to be claimed for swapping materials between jobs. You will make zero profit from trading the materials. 

The question I have to ask is how are you going to put a dollar amount on the material and account for using the material on multiple jobs because there are no real dollars involved. 

You will have to use your new checking account and enter a dollar amount in the payment column for the materials and enter the job address. Then, you would use a payee report to total the amount for each job so you know your profit for each job.

Personally, I would not do any of that and I don't believe you would be breaking any laws if you don't report the trading of materials. Since you are going to use the materials and not profit from them then it seems like a waste of time.

Working for the materials is like getting the materials for free with the exception that they created a higher gross income. Suppose, I work for 1 hour and a customer gives me a water heater worth $500. Then I go to another job and sell that water heater for $900. I did not make one penny on the first job and I made $400 on the 2nd job. You do not pay taxes for getting the water heater. You do not pay income taxes for getting the water heater and then pay income taxes a 2nd time for selling the water heater.

Personally, I would not report the trading of materials. Our government is only concerned about how much you profit and not where you get your materials for free, but you could make some sort of list for your accountant so he understands and you may want to make some sort of list showing the material values (not cost) for each job.


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## AllanE (Apr 25, 2010)

pcplumber said:


> Personally, I would not do any tax reporting for materials I basically get for free and then use on another job .


If he is working and being paid in material or credits, it is income. He is basically bartering. From the IRS website:

"You can receive income in the form of money, property, or services. Bartering is an exchange of property or services. You must include in your income, at the time received, the fair market value of property or services you receive in bartering."


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## mvmjeff (Sep 11, 2012)

Yes, we receive our monthly invoice from the lumber company and the credit is reflected as well as the 'purchases' made against that credit.


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## mvmjeff (Sep 11, 2012)

*Great help, but...*

I'm stunned by all the great advice and info guys. But, IF I report the materials as income, HOW do I reflect this in quickbooks? The lumber yard will be sending me a 1099Misc for sure. Gotta report the income somehow, someway 'cause the gubment will know! I just can't wrap my puny mind around the 'how' part.


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## mvmjeff (Sep 11, 2012)

Very interesting, we meet with our accountant soon. Maybe not soon enough though, better consider getting in sooner! FYI - No sales tax here in Oregon, YAY!


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## mvmjeff (Sep 11, 2012)

What a Herculean and generous response PC! You went above and beyond. I think I see what you're saying, it does make some sense. I'll have to read it a few times to get the full meaning (I need more caffeine!). Some smart minds on this forum, I'm grateful for the advice! So much to think about and so little time to do it.....


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## TNTRenovate (Aug 19, 2010)

pcplumber said:


> Personally, I would not do any tax reporting for materials I basically get for free and then use on another job because you are not earning a profit by working for the materials. You only earn a profit after you use those materials and get paid in dollars if you eventually use all the materials within a taxable year. If I work 1 hour and you give me a water heater I don't make a profit. I only make a profit when I sell that water heater and get paid in dollars. If I store up materials and don't use them then I suppose I could get hit with a capital gains tax, but I would not let that happen. If that happened, I would not do work for materials.
> 
> If you insist that you have to make everyone understand, then I would create a separate bank account in QuickBooks and call it XYZ Credit. You enter the credit exactly the same as you would for credit cards, cash and checks and you call the category Income, Sales, or whatever you call your income now. At some point, you have to use that credit (materials) for something and you will have to have a zero balance in your account (zero materials). You want the checking account only for yourself so you can explain to your account what you are doing, but most-likely, it will not be entered into your regular book keeping because you do not earn a profit by trading materials for work. You only earn a profit from those materials after you install them on another job and get paid with real dollars.
> 
> ...


Nor sure about your logic here. The IRS looks at anything of value as being profit. All one has to do is look at prizes. If you win a prize that is worth overt a certain dollar amount you have to pay taxes on it period.

If the OP charged 10k, 3k being profit and was given a 10k vehicle her would have to pay taxes on the 3k. He wouldn't wait to seek the vehicle.


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## kiteman (Apr 18, 2012)

You will essentially be using the credits against your deductions for materials this tax year, not for future jobs, depending on whether you use the cash or accrual method. Don't make it so complicated.


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## TNTRenovate (Aug 19, 2010)

mvmjeff said:


> I'm stunned by all the great advice and info guys. But, IF I report the materials as income, HOW do I reflect this in quickbooks? The lumber yard will be sending me a 1099Misc for sure. Gotta report the income somehow, someway 'cause the gubment will know! I just can't wrap my puny mind around the 'how' part.


Here is the instructions from Inuit's site:

http://support.quickbooks.intuit.com/support/Articles/HOW19465


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## pcplumber (Oct 12, 2008)

TNTSERVICES said:


> Nor sure about your logic here. The IRS looks at anything of value as being profit. All one has to do is look at prizes. If you win a prize that is worth overt a certain dollar amount you have to pay taxes on it period.
> 
> If the OP charged 10k, 3k being profit and was given a 10k vehicle her would have to pay taxes on the 3k. He wouldn't wait to seek the vehicle.


Working to trade materials does not create an asset nor capital gains if you use those materials on a job within your taxable year.

If I give you $10,000 worth of materials and dump them in your yard you do not IMMEDIATELY put those materials on your current tax reporting record and you do not claim those materials as income nor capital gains and you don't rush to pay income tax on them.

If you work and I pay you with $10,000 worth of materials those materials could have an asset, or capital gains value and they could not. Suppose, I give you $10,000 worth of materials and you never find a use for those materials. Then, if they are useless how can you put a price on their value. That would be like saying your neighbor gives you 1,000 old bricks that you don't want and will never use. You can't put an asset value on them.

Since you did work for the materials and you used them on another job you only traded the material from one job to another. Since you already have the materials in your possession and you don't do accounting for the materials your net profit for the job will be higher and you will be paying taxes on a higher profit that will cover the asset value for the materials you traded.

WITH TRADED MATERIALS

Job total - $ 10,000
Traded materials - zero
Labor, overhead - $3000
Profit $7,000 - you will pay tax on $7,000 and this includes profit from the materials.

You cannot put a dollar value on the material when you did not pay real dollars for the materials. If you include a real dollar value then you would have to have two sets of book keeping. One for fake dollars and one for real dollars, but that is making your work too hard.

Just my opinion and I have been wrong before.


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## TNTRenovate (Aug 19, 2010)

pcplumber said:


> Working to trade materials does not create an asset nor capital gains if you use those materials on a job within your taxable year.
> 
> If I give you $10,000 worth of materials and dump them in your yard you do not IMMEDIATELY put those materials on your current tax reporting record and you do not claim those materials as income nor capital gains and you don't rush to pay income tax on them.
> 
> ...


You are wrong.

Here's what the IRS says about bartering:

Bartering is the exchange of goods or services. Usually there is no exchange of cash. An example of bartering is a plumber exchanging plumbing services for the dental services of a dentist. *You must include in gross income in the year of receipt the fair market value of goods or services received from bartering.*

http://www.irs.gov/taxtopics/tc420.html


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## mvmjeff (Sep 11, 2012)

*I'm gonna say it...OMG, thank you guys*

I had hoped for a little help, but received a boatload and I'm so grateful. Especially to TNT, that link was very helpful (tho I don't quite understand it fully yet, I'm a little dense and new ideas have to marinate). Plus there were links to other related things that are proving quite helpful. I guess it really comes down to QB. How to make it good with QB. I do have a partner in all this so I want and need to be 110% fair with everything! This is a great place to share and learn, thanks!:thumbup:


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## pcplumber (Oct 12, 2008)

TNTSERVICES said:


> Nor sure about your logic here. The IRS looks at anything of value as being profit. All one has to do is look at prizes. If you win a prize that is worth overt a certain dollar amount you have to pay taxes on it period.
> 
> If the OP charged 10k, 3k being profit and was given a 10k vehicle her would have to pay taxes on the 3k. He wouldn't wait to seek the vehicle.


The question on this thread is how to do the accounting for materials that are obtained by working for them. I am aware of the IRS rules regarding bartering and I remember the days when bartering was very popular in the 1970's and when the IRS made those rules.

Look as this scenario:

$3,000 worth of materials were obtained through bartering (working for the materials.

The contractor has a capital gain of $3,000 and would have to pay tax on that at the end of the year.

Two weeks after the contractor obtained those materials he used all of them on another job.

So, the materials were only traded from one job to another and nor there is no capital gains and it is not necessary to report those materials nor gains to the IRS. The exchange is a wash.

The only thing a contractor needs to be concerned about is that he should not report the materials to anyone because this will confuse people and since no profit was made from the materials the IRS will not concerned.

The only thing you need to report is the income and real money expenses for the job you used the materials on. Since you bartered for the materials (did not pay cash) your profit will be higher on the job you used the materials on and you will pay the only taxes you are supposed to pay and that will be the tax for profit.

As stated in a previous post, it is possible to set up a separate account for materials you barter, but that is a senseless waste of time if you are going to use the materials. You could uses your same QuickBooks account, enter dollar amounts for the materials for both debits and credits, but that really screws up your book keeping because they are not real dollars. At some point, your fake dollars would have to be equal to zero and that means you need a separate form to calculate the balance for your fake dollars.

If it really bothers a contractor then write down the materials you trade both ways and give your accountant the list. At the end of every year, I always have transactions I don't know what to do with and this is why I have a CPA.

You cannot eat a water heater.

You paint my bedroom for $500 and you pay me with a water heater?

One hour later, you have a customer who wants to purchase the water heater from you.

You charge $500 for the water heater plus $400 to install it.

The total bill is $900.

How do you claim your taxable income to the IRS and include your bartering.

Your records state that you installed a water heater for $900.

How much income tax do you pay. You pay tax on the entire $900.

How much did you earn from the water heater and for painting the bedroom.

You did not earn one penny for painting the bedroom and you did not earn one penny from the water heater.

You made profit of $900 for installing the water heater. That is how I would report my taxes. I would claim taxes only for the labor because labor is the only thing you did. You did labor to get the water heater and you did labor to get rid of the water heater. No cash changed hands regarding the water heater. Everything was pure labor and that is what you pay tax on. 

The working for labor in this thread is not the same as bartering where people end up with assets that are taxable. For example, I know a plumber who did bartering with a car dealer. The plumber installed a new sewer pipe and the car dealer gave the plumber a used van. In a case like this the plumber kept the van and had to pay a capital gains tax, but if the plumber traded the van for the plumbing materials then there would be no capital gains. Therefore, why would the IRS care if the deal was a wash.

The most I would do is enter a note in a memo field, or on the contract. I would make a contract for painting the room and state that I traded the job for a water heater. If you feel the need to record the job on your records you state that the contract amount was zero and you will pick up the $500 paint job on your records when you install the water heater. When I install the water heater I would make a note on that contract (later and not show the customer) that states that the water heater came from my paint job. That way, if my accountant questioned where the materials came from I could explain 5 years later how the materials were a wash and why the entire $900 job is taxable even though only $400 was for labor.

If you want your records to be more accurate and harder to do you install the water heater for $900. After the job is finished you enter the water heater job on your records for $400 and you go back to your paint job and make the income $500. That is too much thinking and now you have to split the check into two transactions in QuickBooks.


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## TNTRenovate (Aug 19, 2010)

pcplumber said:


> The question on this thread is how to do the accounting for materials that are obtained by working for them. I am aware of the IRS rules regarding bartering and I remember the days when bartering was very popular in the 1970's and when the IRS made those rules.
> 
> Look as this scenario:
> 
> ...


I've never said it was all taxable, but it is income. You have to report it. You gained for doing the work whether it was a water heater or cold hard cash. Again replace the word water heater with cash. The $500 is equal to $500 in cash. You only take products that are worth equal to or more than the money owed. If not, again, you need to shut down your business and go be an employee.


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## EthanB (Sep 28, 2011)

I don't think you're right on this one PC.

I see why it would seem that way but, to the IRS, it doesn't matter whether you receive $10k in currency or $10k worth of gold, silver, lumber or jellybeans. It's $10k in agreed value.

Your point about using the materials on another job doesn't hold water because it isn't really any different than if you were paid $10k in currency and then spent that $10k on materials for the next job. It's the same thing.

He won't have to pay taxes specifically on the value of that material because it's only the net profit of the business that is really at issue. Your point that it will all wash out appears to be correct but, if it's all the same, then it should be properly recorded for his records and there for the IRS so they don't start wondering where the money for those materials invoices came from. 

I wouldn't hide it because it will make it look like he was using cash from undisclosed income to pay for the materials.


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## AllanE (Apr 25, 2010)

pcplumber said:


> You do work for the vendor and want to trade materials. Have the vendor pay you with a check and at the same time you write him one of your checks for the value of the materials. Boom!!! You made an even trade, you don't owe the IRS one penny and you enter the credit and debit in your Quickbooks, or whatever system you use and your books will show a zero balance with no capital gains.


I've never seen so many inaccuracies, misinformation and illogical statements!


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## pcplumber (Oct 12, 2008)

AllanE said:


> I've never seen so many inaccuracies, misinformation and illogical statements!


That is why most contractors need a book keeper and the reason I personally do my own books for 7 entirely seperate businesses that contain more than 20,000 records every year. I will always back up my claim that my books are accurate to the penny. I had a major IRS audit two years ago and they did not find a mistake for one penny with the exception of some mistakes my CPA made when he transposed some numbers, but I pay my CPA to check my records and I did not have the time to check his work by the time the IRS auditor arrived. I took on a partner last year, started a new business and I just started a partnership two weeks ago for another new business. I do all the books and my partners will never find a mistake for one penny. 

I don't operate based on myths and opinions. I operate with facts, mathematics and common sense. I am finding it difficult to understand how many posts claim that an even trade is bartering and has tax consequences. Now, that is bad advice!

This following in quotations came from the questions and answers on quickbook's site.

"Barter is "I owe you, and you owe me" but not this credit activity. Credit activity goes against the same name as the Charge activity. "I owe you, and you gave me credit" means it is all about you as Vendor. This is not "vendor as customer" but "vendor only" and then "customer only" activities. Customer charge gets customer credits. Vendor Charges and Vendor Credits. Not Vendor Credits pay off Customer charges.

In that situation I usually due a negative amount for the parts & shipping charges on the customer invoice and offset the vendor credit against the vendor bill to zero them out."

At least, someone on another website agrees with me.

This really is a crazy thread if you think that working for materials is bartering even if each party paid each other with a check. Then, those people have the problem.

I am not arguing just for the sake of arguing. I am arguing because I don't want leave this thread with people giving bad advice and because I think there is something that can be learned regarding how to solve book keeping problems. 

Now, I am finished and will not keep arguing.


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## TNTRenovate (Aug 19, 2010)

I posted a link stating that credit is as good as cash and must be reported. That is what the IRS said.

And he did work for his vendor, thus making them a customer as well.


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## chew (Apr 5, 2012)

mvmjeff said:


> Hey all,
> I'm trying to figure out an accounting issue. I'm working on a LONG ongoing job where I'm being 'paid' in store credit. It's a lumber company and I'm working on their newest building, but they prefer to pay me in job materials (these materials are being used on this AND other jobs). I want to be legit! But I can't figure out how to do this in my QB company. Driving me crackers!
> 
> Anyone else run into this kind of situation?? Thanks !
> J


This is very easy I do it with one of my vendors.
1st you sent up a customer acct. for the lumber yard. Name the acct. name of company - sales

2nd set up a vendor acct for the lumber yard. Name the acct. name of company - purchases

QuickBooks will not let you have same acct. name in the customer & vendor accts. list. that is why you need to add sales on customer acct. & purchases on the vendor list.

3rd set up a cash acct. in the bank type of acct.

Now when you do work for the vendor & you invoice them for it under their sales name & QuickBooks automatically enters that in the accts. receivable list.

Then when you receive materials & they give you a bill or credit to used. You enter that amount in the enter bills section as a bill under their purchases name.

Now you go to receive payments enter the amount of credit you used & in the pmt. method box enter cash

Then go to make deposits, click that amount & deposit into cash.

Now go to pay bills, click on the bill, in the amount to pay section put in the amount of the credit, under payment acct.(down at the bottom of page) click on cash, under payment method ( next to payment acct.) click check & then click on pay & close or pay & new.

Now you have properly enter the whole transaction & documented the whole process.

This process does not matter if you use Cash or accrual method of accounting. It will treat the transactions correctly & the IRS will not have any issues.


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