There are many businesses that deal in trade-ins, such as motor car traders. These trade-in type transactions can be quickly and easily accounted for in your software. This support note explains how.
Note: The N-T (No-Tax/Not Reportable) Tax Code is used exclusively throughout this support note. Please check your GST reporting obligations with your accountant or the ATO and then use the appropriate Tax Code.
How do I setup my company file to record trade-ins?
Before recording any trade-in transactions, you will need to setup:
- a new asset banking account - to be used as a clearing account to 'hold' the value of the trade-in
- a new inventory item - to be used to deduct the trade-in amount from the sale and deposit the deduction to the Trade-in Clearing account
Setting up an asset banking account
This account will be used as a clearing account to 'hold' the value of the trade-in.
- Go to the Accounts command centre and click Accounts List.
- Click the Asset tab then click New.
- Select Bank in the Account Type drop-down menu.
- Give the account a unique number that suits your account list.
- Name the account Trade-in Clearing Account.
- Click OK. The following window shows the setup of an example Trade-in Clearing account.
Setup a new inventory item
This item is used to deduct the trade-in amount from the sale and deposit the deduction to the Trade-in Clearing account (created in the previous task in this support note).
- Go to the Lists menu and choose Items.
- Click New.
- Enter an Item Number, such as Trade, and enter an Item Name, such as Trade-in item.
- Select the I Sell This Item option.
- Enter the Trade-in Clearing account in the Income Account for Tracking Sales field - this will be the account created in the previous task in this support note. If you receive a warning message regarding the type of account selected, click OK to this message.
- Click the Selling Details tab and enter the relevant
Tax Code When Sold
- Click OK .
The window below shows the setup of an example Trade-in item.
How do I record a sale that includes a trade-in?
There are three tasks to record a trade-in:
After creating a Card for the customer:
- Go to the Sales command centre and click Enter Sales.
- Select the Customer's Card.
- Enter the Invoice # and Date.
- On the first line, enter the Ship quantity of the item being sold, enter the Item Number, Description and Price.
- On the second line, enter a negative one (-1) in the Ship field. Enter the Item Number of the new Item that was setup and then enter the Price, being the value of the trade-in.
- Enter the other transaction details as required then click Record.
The above steps will deduct the value of the trade-in from the sale and deposit it into the Trade-in Clearing account which is the linked account for the Trade-in Item.
The window below shows a sample Invoice with the trade-in deduction.
Before recording the Bill, you will first need to setup a Supplier type Card for the customer, and an Item for the 'thing' being traded in. When setting up this Item, ensure that the I Purchase This Item option is activated and that the relevant cost of sales account (5-xxxx) is selected (You may also want to select the I Inventory This Item and also the I Sell This Item options).
- Go to the Purchases command centre and click Enter Purchases.
- Select the Supplier Card that was specifically setup for the customer.
- Click the Layout button, choose Item and click OK.
- Enter the Purchase #, Date, Memo and the other purchase details.
- Enter the quantity Received, Item Number, and then enter the Price - using the same price as entered for the trade Item on the sales Invoice. Enter this amount as a positive, for example $2500.00.
- Check the transaction then click Record.
The window below shows a sample Bill for a traded-in item.
The Trade-in Clearing account, which was used to enter the trade-in deduction, is used to pay the Bill for the purchase of the trade-in item. This will post a withdrawal to the Trade-in Clearing account, leaving it with a zero balance.
- Go to the Purchases command centre and click Pay Bills.
- Select the Supplier Card that was specifically created for the customer.
- Select the Pay From Account option then enter the Trade-in Clearing account in the adjacent Account field.
- Enter the Memo, Date and Amount.
- Enter the Amount Applied against the Bill for the trade-in item.
- Check the transaction details then click Record.
The window below shows a sample of the Pay Bills transaction. This will close the Bill and clear the Trade-in Clearing account balance.