Some businesses accept customer trade-ins to reduce the selling price of goods sold. For example, a car dealer might accept a vehicle trade-in and deduct the trade-in value from the price of a new car.
The steps below can be used for most trade-in situations, but you should also check with your accounting advisor about your tax/GST reporting obligations associated with trade-ins for your business.
Set up for trade-ins
Before recording a trade-in, there's a couple of things you need to do.
- Create an asset account with the Account Type set to Bank. This account will be used as a clearing account to hold the value of the trade-in.
- Create an inventory item to represent a default trade-in item. You'll use this item when recording sales which include a trade-in to deduct the trade-in value from the sale price.
- Select the option I Sell This Item
- For the Income Account for Tracking Sales, select the asset account created above (ignore the warning about this account usually being an income account)
- On the Selling Details tab, select the relevant Tax/GST Code When Sold.
You're now ready to record sales which include trade-ins.
Record a sale that includes a trade-in
If the trade-in is from a new customer, create a customer card for them.
You can then enter an invoice to record the sale.
- On the first line, enter details of the item being sold.
- On the second line:
- enter a negative one (-1) in the Ship field
- select the Trade-In item created earlier
- enter the trade-in value in the Price field
Recording this sale will:
- deduct the value of the trade-in from the amount the customer needs to pay, and
- deposit the value of the trade-in into the Trade-in Clearing account.
Record a bill for the trade-in item
When you receive a trade-in, you're effectively buying that item from the customer. Here's how you can record that purchase:
- Create a supplier card for the customer. This will allow you to select this supplier when recording the purchase.
- Create an inventory item for the trade-in item.
- Select the option I Buy This Item. Depending on what you do with your traded-in items, you can also select I Sell This Item and I Inventory This Item.
- Select the applicable Expense Account for Tracking Costs.
- On the Buying Details tab, select the relevant Tax/GST Code When Bought.
- Enter a bill for the trade-in item.
- In the Supplier field, select the supplier card you created for the customer.
- Select the trade-in item in the Item Number field.
- Enter the trade-in value in the Price field.
Recording this purchase will account for the receipt of the trade-in item.
Close the bill for the trade-in item
You can now close the bill using the funds which were allocated to the Trade-in Clearing account when you recorded the sale.
On the Pay Bills window:
- Select the Pay From Account option and select the Trade-in Clearing account.
- In the Supplier field, choose the supplier card you created for the customer. Their open bill will be listed.
- In the Amount field, enter the trade-in value.
- Apply this amount against the bill.
Recording this payment will:
- close the bill, and
- clear the balance of the Trade-in Clearing account.