Record commission income
This article explains how to record commission income in FreeAgent.
If you receive commission income - for example if you sell goods or services to a customer, keep a proportion of the sale price as income and pay the remaining amount to a third party - you’ll need to follow the steps below to record the income and costs in FreeAgent.
The steps to take depend on whether you want to include all of the income and costs on the Profit and Loss report or only include the commission income. If you’re unsure which method you should choose, please ask your accountant.
The example below is of a scenario where you sell a work of art for £6,000, keep £600 of the sale price as your income and pay the remaining £5,400 to the artist.
Please note that you’ll need level 7 access or above to follow the steps in method 2 and full (level 8) access to follow the steps in method 1.
In a hurry?
- If you want to include all of the income and costs on your Profit and Loss report, you’ll need to add new income and cost categories for the income, commission and fees.
You’ll then need to split the money received between the new income and commission categories, and then explain the money paid out as fees to the new cost category.
- If you only want to include the income on your Profit and Loss report, you’ll need to add a dummy bank account to represent your customer and add a new income category for the commission.
You’ll then need to split the money received between a transfer from the dummy bank account and the commission, and then explain the money paid out as a transfer to the dummy bank account.
Method 1: include all the income and costs on the Profit and Loss report
If you want to include all of the income and costs on the Profit and Loss report, you’ll need to:
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Add new income categories
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Add a new cost category
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Split the money received between income and commission
- Explain the money paid out to the artist
1. Add new income categories
You’ll first need to add an income category for the money received from the sale.
You’ll also need to add a new income category for the commission earned.
2. Add a new cost category
Next, you’ll need to add a new cost category for the artist's fees. If you’re unsure which type of cost category you need to add, please ask your accountant.
3. Split the bank transaction between the income and commission
Then, you’ll need to explain the income and costs by splitting the ‘Money in’ bank transaction for £6,000 once it has been imported into FreeAgent.
Navigate to the relevant bank transaction and split it by allocating £5,400 to the paintings income category and £600 to the commission earned income category that you added previously.
4. Explain the customer’s fees
Finally, you’ll need to explain the money paid to the customer once the relevant transaction has been imported into FreeAgent.
Navigate to the ‘Money out’ transaction for £5,400, select ‘Payment’ as the transaction ‘Type’, select the cost category that you created for the customer’s fees from the ‘Category’ drop-down menu and select ‘Explain transaction’ to complete the process.
Method 2: only include your income on your Profit and Loss report
If you only want to include the income on the Profit and Loss report, you’ll need to:
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Add a dummy bank account
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Add a new income category
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Split the money received
- Explain the money paid out
1. Add a dummy bank account
First, you’ll need to add a dummy bank account to represent your customer and call it something suitable. For example, ‘Artist’s fees’, using the example of selling works of art.
2. Add a new income category
Next, you’ll need to add an income category for the commission earned.
3. Split the money received
Then, you’ll need to split the £6,000 ‘Money in’ transaction once it has been imported into FreeAgent by allocating £5,400 as a transfer from the dummy bank account, and explaining the remaining £600 to the commission earned income category you added.
When allocating the £5,400, select ‘Transfer from Another Account’ as the transaction ‘Type’ and select the dummy bank account from the ‘Bank Account’ drop-down menu. When explaining the remaining £600, select ‘Sales’ as the transaction ‘Type’ and select the new income category you added from the ‘Category’ drop-down menu.
4. Explain the money paid out
Finally, you’ll need to explain the money paid to the artist once the relevant transaction has been imported into FreeAgent.
Navigate to the ‘Money out’ transaction for £5,400, select ‘Transfer to Another Account’ from the ‘Type’ drop-down menu, select the dummy bank account you added from the ‘Bank Account’ drop-down menu and select ‘Explain transaction’ to complete the process.
The two bank transactions for £5,400 that are explained as bank transfers will net each other off and neither will appear on the Profit and Loss report.