We sent some items for free to potential customers as a form of marketing. We use QuickBooks.

1. What entries do we need to post?
2. What is the correct amount to use - the wholesale cost or the retail cost of the item?
3. How should the costs of shipping, and if applicable, sales tax be handled?

We also sent an item to an investor as a business gift. How is that handled?

Please take baby steps in explaining - am pretty uncomfortable with accounting. Thanks!

The answers:

1. Debit : Promotions, Credit : Inventory
2. use the same unit price as per your system
3. shipping cost also can also be treated as promotional expenses as in your case, it is associated with the promotion.


For gifts: Debit - Gift account instead of Promotion expense


savin.yakeep@yahoo.com

Thank you PK, very helpful.

1a. I'm using QuickBooks to make these entries. For normal sales to customers, I have a QB customer account set up called Web Sales, in which I record all retail orders (retail price, shipping charge and sales tax charged) that go through our shopping cart. The promotional shipments in my initial question also went through our web-based shopping cart.

- Should I create a different kind of "customer" account for them?
- Or do I not reflect these promotional shipments in the QB Customer center? If not, then where would I enter the sales tax so that we have an accurate record of what we charged for sales tax in QB? (QB is calculating sales tax based on percentages that we specified for the different tax jurisdictions.)

1b. I have an Expense account set up for Advertising & Promotion. There is no bill or invoice to enter, so what is the correct way to do this? Do I make journal entries in the Advertising & Promotion account using the General Ledger?

2. By unit price do you mean the retail or the wholesale price? (I had to pay sales tax, so I charged sales tax on the retail price for each unit.)

3. So I should set up a Gift Expense account, correct?

Thank you!

Hi Lis7,

I think it will be better if you create a seperate customer grouping and debit their accounts with the cost of promotional items. Since you will not actually receive money from such customers (as it is given as a promo item), pass the following journal entry thru General Ledger option:

Debit : Promotional/Gift expenses
Credit : Accounts Receivable

This will zero out the debit balance in the customer account.

Regarding the tax implications in your specific country, I am sorry I cannot answer.

Hope this helps.

savin.yakeep@yahoo.com