Accounting of exchange transactions
Accounting of exchange transactions
The difficult economic climate of recent years has led to more and more companies use exchange transactions in which they exchange their products and services for other products and services. Many companies incorrectly assume that they do not have to take these transactions into account. The accounting of exchange transactions is required by the IRS and is essential to precisely determine the financial health of your company.
When you exchange for other goods and services, you still invest time and resources to sell the object you act. You only receive one other goods than cash in exchange for your product or service. The non -accounting of exchange transactions corresponds to the non -accounting of income and expenses. It is impossible to determine how well your company is going if you cannot create exact annual financial statements.
The recording of these transactions is quite simple if you disassemble them into individual parts. Two transactions take place when trading: 1) You sell something and 2) you buy something. The most confusing factor can be the determination of the value of the transaction. The IRS guidelines stipulate that they have to evaluate the transaction for the fair market value of the article obtained. In most cases, the market value is already known - it is the normal sales price of the article. The sale of your goods or services is evaluated with the purchase price of the goods you receive.
Of course you also have to note the entrance of the article. If the article you receive is a valid business edition, you record it as well as a cash payment. Instead of cash, they paid their goods or services. If the article you receive is intended for your personal use, you have to grasp it as if you had removed cash from your business (drawing, salary advance, etc.). Let's look at an example to see how it works in practice:
A designer exchanges his website design services for a free rent for two months. Its rent is usually $ 800/month. The designer would record the transaction with $ 1,600, the value of two monthly rents. Since the rent is an operating expense, he would book "rental costs" and "income" with $ 1,600.
Exchange exchanges are becoming increasingly common. If you act on a exchange exchange, you act against "points" via a third organization. You can collect points by selling your goods and services to other members of the organization and applying these points if you find something you want to buy.
If you act with an exchange service, it is important to understand that the exchange income is based on cash base. If someone "buys" their services with trade loans or points, they have received reportable income. The fact that you have not spent your trade credit is not relevant. If you spend your trade credit, record the expenses as well as with direct trade (normal business expenses or personal draws).
The easiest way to balance exchange exchanges is to set up a "bank account" called "Exchange exchanges" in their books. If you sell something via an exchange, make a deposit on the bank account of "Barter Exchanges" and write "income" well. If you buy something on the stock exchange, you can simply "issue a check" and strain the corresponding expense account. With this method you have a complete recording of all transactions that are carried out via your exchange account, and you have properly recorded your income and expenses. You can also make the coordination of your exchange account part of your normal monthly final process.
The proper accounting of both types of exchange transactions is essential for the exact presentation of their income and expenses. If you record direct exchange transactions, you essentially record a sale and purchase. Instead of recording two transactions - one where you sold something for cash, and one with which you bought something with cash - record a transaction and skip cash. Exchange transactions resemble cash transactions; You only need an exchange bank account to record it. Remember to keep a paper lane in any case and write it down as an exchange. Further information can be found in the IRS document "Records for Exchange shops."