COMMISSION

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Reckon Accounts does not seem to easily handle real estate commissions for a commission-only sales person where a periodic, say, fortnightly or monthly "advance" is paid against future commissions with sale commission, as it falls due to be paid to the salesperson for settled sales is offset against an accumulated total of these fortnightly advances.  "A Debit/Credit system" you would call it. 

From my year 12 accounting circa 1972 I seem to remember (a dangerously poor memory) that a prepaid expense is an asset by replacing Cash at Bank for the pending commission expense.  If I am correct with that then the  prepaid (“advance”) commission might accumulate in Reckon Accounts as the prepaid expense in a “payroll asset” account (like PAYG accumulates in a payroll liability account) until the actual commission expense is entered at which point the Payment entry made when commission is payable has the effect of doing two things :  (a) a non-cash double entry creating the commission expense in reduction of the payroll asset and (b) for any proportion of the commission which exceeds the balance in the payroll asset account the entry would be a commission expense entry in reduction of Cash at Bank. 

 Reckon Accounts would have to be able to look at the payroll asset balance for that employee using a logical lookup function and apply it to an apportionment of the commission transaction total.

 Another trick is that a commission is often split between more than one employee e.g. the listing agent and the selling agent.  There would have to be a separate payroll asset account linked to each employee and there would have to be separate payroll asset lookups happening for each of the employees to which a sale commission is being distributed or apportioned. 

 The trick would be in having a running total for the accumulating fortnightly or monthly advance payments as a sort of charge to the employee (sort of a reverse liability account), on the one hand, and on the other hand having Reckon reduce the commission amounts payable by the amount of the accumulated charge, then reduce the balance of the charge to zero or to a reduced balance if the accumulated charge is greater than the commission transaction amount. 

If the commission payable at that point in time exceeds the accumulated balance then the difference would be payable to the employee as part of a given payroll processing event.  Alternatively if it is less, then the accumulated balance is reduced and no additional sum is paid to the employee (because they have received net advances that are greater than commission earned).  Sorry if I am being repetitive.

 Does anyone know if there is a technique to do this in Reckon Accounts (without having to run a separate excel spreadsheet or whatever). 

If not, could Reckon programmers please look at this and maybe consult with the real estate industry to be able to do it in an optimal way???? 

 By optimal I mean performing all aspects of the commission side of our payroll entirely within Reckon Accounts with as much automation as possible but with sufficient flexibility to allow for substantial variation in commission structures.  I assume you could make provision for this through your Payroll Item facility?  Also, optimal would also mean being able to print a statement, in addition to payslips or summarized in a payslip, that would tell me what additional amount I have to add to the regular payment  that gets made to the employee’s bank account in a given pay period in recognition that commission is always a variable amount as opposed to the commission advance payments which are fixed amounts.

 The ultimate would be to initiate this from the customer invoice for the full business commission such that a commission split (between the share due to the business and the share payable to one or more sales reps who participated in the sale) is made and calculated at the invoice preparation stage without any of that being displayed on the printed or emailed customer invoice.  What I can’t fathom is how Reckon would make the link between the Accounts Receivable section and the Payroll section to allow all this to happen such that it feeds right down the line into such things as payment summaries.

 Because commissions are variable amounts there should be something that flags a reminder to apply a nominated tax rate – an appropriate amount based on a subjective estimate of annual earnings.  Otherwise Reckon will apply the raw tax tables and possibly apply the wrong amount of tax.

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RealEstateProblem

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Posted 5 years ago

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Kevin V. Russell, Accredited Partner

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Good luck getting any small business accounting system to deal with this. Ihave never heard of real estate agents or anyone for that matter being paid commission in advance. But I've only been using the system for 17 years.
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RealEstateProblem

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Thanks Kevin.  In fact it is very common.  Perhaps the word "retainer" might be more meaningful to you? I guess I am looking for someone who knows the real estate industry in more detail.  Anyone?
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Kevin V. Russell, Accredited Partner

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If it's a retainer then it is income in the hands of the employee and it is an expense to the business. Where is the problem? Honestly, I think you are overthinking this. I deal with real estate agents here in Geelong. They don't have a problem with it.
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RealEstateProblem

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Thanks Kevin. 
Yes it is an expense when paid but it is then offset by what is paid for an actual sale or sales.  So if it is a prepayment of expected commission then I have to treat it as an accrual (even though I am accounting on a cash basis) until it becomes payable as a commission expense against commission revenue. 
I have to record the commission amount but I also have to reduce the amount I am paying to the employee in the form of the fortnightly "prepayment", "retainer" (or whatever you want to call it) so I need to tally the prepays and ensure that I can offset incoming commission due and payable in part to the employee by the amount of accumulated "prepayment" - lets call them PREPAYS.   I also need to cover the fact that the commission payments are sometimes going to be greater than the Prepays and sometimes less than (leaving a Prepays balance which will be captured when the next commission payment for that employee is recorded.)
If there was one Prepay and one corresponding commission payment then that would be fine and easy but if there are multiple prepays (fortnightly) and multiple sales commissions it gets harder.  Yes I can play with excel or any other third party thing to help with the tallying and calcs but I still have to get the recording right in Reckon so my BAS, PAYG, GROUP CERTIFICATES and the whole shebang are all spot on.
Equally I don't want to miss the expense when the expense is of benefit to me e.g. at EOFY.
I am seeking someone who can give me an accounting solution from within Reckon so I have least handling, most efficiency and maximum accuracy in recording what I pay, what the employee is entitled to receive and what has to be accounted for with as aforesaid.
As you may be able to detect I am not an accountant so I am not getting your line on what you see as the simplicity of the problem or its solution.
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RealEstateProblem

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SOLUTION!!??
I have been given a solution by a VERY helpful Reckon man.  It seems to do the job in a logical way.  If anyone has any suggestions to embellish it or constructively criticise it that would be great. Sorry this post is so long!

Reckon Accounts does not seem to easily handle real estate commissions for a commission-only sales person where a periodic, say, fortnightly or monthly "advance" is paid against future commissions with sale commission, as it falls due to be paid to the salesperson for settled sales is offset against an accumulated total of these fortnightly advances.  "A Debit/Credit system" you would call it. 

From my year 12 accounting circa 1972 I seem to remember (a dangerously poor memory) that a prepaid expense is an asset by replacing Cash at Bank for the pending commission expense.  If I am correct with that then the  prepaid (“advance”) commission might accumulate in Reckon Accounts as the prepaid expense in a “payroll asset” account (like PAYG accumulates in a payroll liability account) until the actual commission expense is entered at which point the Payment entry made when commission is payable has the effect of doing two things :  (a) a non-cash double entry creating the commission expense in reduction of the payroll asset and (b) for any proportion of the commission which exceeds the balance in the payroll asset account the entry would be a commission expense entry in reduction of Cash at Bank. 

Possible Solution:

  • Create 2 x ADDITION type payroll items. One linked to a current asset account (pre-paid commissions) and one to a payroll expense account (commissions paid).
  • Pre-paid is accumulated as it is paid to the employee. When the adjustment from asset to expense is required, use a -ve for the pre-paid and a +ve for the expense. For example, if the employee has a pre-paid balance of $10,000 and you want to move the $10,000 prepaid to an expense, the payroll entry might look like this...

 

  • Every dollar paid above the pre-paid amount would be paid as straight commission expense. That is, you would only effect the pre-paid balance until it returned to zero. 
  • To see each employees pre-paid balance at any time, go to the chart of accounts, right-click on the pre-paid asset account and run a fast report for that account. Then filter by the applicable employees name.  ** You could also run a fast report on the payroll item for the same result. You would memorise this report to run quickly when required.

Matters that Reckon employees cannot advise on that you should consider:

  • PAYG and Payroll taxes on pre-paid commissions and commission expense
  • Superannuation payable on pre-paid commissions and commission expense
  • Where and when to report these payments on the employees payment summary (this is to be set up when creating the payroll items) 
  • End of year pre-paid balance adjustments and payment summary reporting

Reckon Accounts would have to be able to look at the payroll asset balance for that employee using a logical lookup function and apply it to an apportionment of the commission transaction total.

See the above mentioned report. You would also need to manually adjust the pre-paid commission item in the paycheque as required based on the report balances.

 Another trick is that a commission is often split between more than one employee e.g. the listing agent and the selling agent.  There would have to be a separate payroll asset account linked to each employee and there would have to be separate payroll asset lookups happening for each of the employees to which a sale commission is being distributed or apportioned. 

You only need one payroll item and one asset account and use report filters, however another option is to create a pre-paid commission payroll item for each employee, still linked to ONE asset in the general ledger account though. This way instead of filtering the fast report for each employee, you would just run a fast report for each payroll item. ** You don't need multiple payroll items for the commission expense though - it's unnecessary as you only need to track the balance of the pre-paid commission.

 The trick would be in having a running total for the accumulating fortnightly or monthly advance payments as a sort of charge to the employee (sort of a reverse liability account), on the one hand, and on the other hand having Reckon reduce the commission amounts payable by the amount of the accumulated charge, then reduce the balance of the charge to zero or to a reduced balance if the accumulated charge is greater than the commission transaction amount.

Covered by the above-mentioned suggestion.

 If the commission payable at that point in time exceeds the accumulated balance then the difference would be payable to the employee as part of a given payroll processing event.  Alternatively if it is less, then the accumulated balance is reduced and no additional sum is paid to the employee (because they have received net advances that are greater than commission earned).  Sorry if I am being repetitive.

 

Does anyone know if there is a technique to do this in Reckon Accounts (without having to run a separate excel spreadsheet or whatever). 

If not, could Reckon programmers please look at this and maybe consult with the real estate industry to be able to do it in an optimal way????

This is unlikely Brian as mentioned previously. We would love to cater for each niche sector but it is not our target market.

 By optimal I mean performing all aspects of the commission side of our payroll entirely within Reckon Accounts with as much automation as possible but with sufficient flexibility to allow for substantial variation in commission structures.  I assume you could make provision for this through your Payroll Item facility?  Also, optimal would also mean being able to print a statement, in addition to payslips or summarized in a payslip, that would tell me what additional amount I have to add to the regular payment  that gets made to the employee’s bank account in a given pay period in recognition that commission is always a variable amount as opposed to the commission advance payments which are fixed amounts.

The ultimate would be to initiate this from the customer invoice for the full business commission such that a commission split (between the share due to the business and the share payable to one or more sales reps who participated in the sale) is made and calculated at the invoice preparation stage without any of that being displayed on the printed or emailed customer invoice.  What I can’t fathom is how Reckon would make the link between the Accounts Receivable section and the Payroll section to allow all this to happen such that it feeds right down the line into such things as payment summaries.

Sales reps or a combination a rep name (eg. Sellars-Hollis) is used to track sales per rep however commission calculations are manual based on the sales rep report. 

 Because commissions are variable amounts there should be something that flags a reminder to apply a nominated tax rate – an appropriate amount based on a subjective estimate of annual earnings.  Otherwise Reckon will apply the raw tax tables and possibly apply the wrong amount of tax.

Reckon accounts taxes an employee based on the payroll item settings, however you can override this at the employee tax rate level. However it is likely that it will not cater for all scenarios.

I assume a good number of real estate offices use Reckon like I do.  I also assume that many other industries also use commission advances of some sort to assist employee’s personal cashflow.

The community forum would be a great place to test this theory. Our Accredited Partner network may also offer a solution on the forum, although please keep in mind that they are not obliged to do so as industry specific solutions beyond the scope of the Reckon Product Range often form part of an Accredited Partners IP.

So there is benefit for Reckon putting a little more focus on this enhanced treatment of commission.  I don’t know if MYOB handles this better.  

There are products on the market specific to your industry that will, and perhaps even some that use Reckon as the accounting backend whilst the add-on processes the day-to-day transactions? 

 There may be flaws in this proposition (I am only an amateur) but as there is nothing currently available to do the job then your devising a workable alternative to my proposition would be MUCH APPRECIATED and not only by me, I am sure.

Hopefully I have provided satisfactory responses Brian. It is not a perfect solution however it should give you a starting point to expand upon. I also hope I have provided an insight into where we sit in the market as opposed to industry specific software.