Selling My Jewelry on Consignment Basis

Selling My Jewelry on Consignment Basis - Tax Questions

by Kimberly
(North Dakota)

Hello!

I own my own artisan jewelry shop and I recently started to sell my jewelry on a consignment basis as well. My questions are below:

1) Quickbooks Pro:

I use Quickbooks Pro to keep track of all of my financial matters and I have NO clue how to try and record consignment sales. I do not keep track of inventory... so I assume that the type of the item would be a non-inventory part? Is this correct?

Also what is the vital information that I need to include in Quickbooks regarding my consignment transactions.

I am really new at using Quickbooks... so the more detail given would be most appreciated! :)

Also, if any of you know of a really good tutorial for using Quickbooks Pro for keeping track of non-inventory parts... I would be SO thankful!

2) Sales Tax:

Do I pay sales tax for the jewelry that is sold? Or do I only pay use tax if the sales tax is less than it is in the city where I have my store? Or is use tax no longer even an issue?

Please help! I am a tad bit overwhelmed! :)

Thank you so much for any advice that you can give!

Sincerely, Kimberly

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Selling My Jewelry on Consignment Basis - Tax Questions

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Sales Tax and Selling Jewelry on Consignment
by: Rena

Hi Kimberly,

Quickbooks:

I've never used Quickbooks, so I can't answer your questions about it - but hopefully another kind person will stop by and share some enlightenment about it.

Sales Tax:

Sales tax is collected and paid by whoever makes the final retail sale to the customer.

In this case, that would be the shop where you're consigning your jewelry (I'm assuming you're consigning your jewelry to a different shop - not your own?).

Whenever you sell your jewelry wholesale or on consignment to another person or entity, sales tax is not your responsibility - it's the responsibility of whatever shop or other entity makes the final retail sale to the customer.

However, when you personally sell your jewelry directly to the final customer (such as at shows, home parties, and in your own shop), then you are responsible for collecting and paying whatever sales tax is required.

In your phone book, check the state government pages (usually in the blue pages in the middle of the phone book) for your state's Department of Revenue. Call or visit them to make sure you know their sales tax requirements.

Hope this helps!

Chart of Accounts
by: Rita Juhlin

Using Q-books is a versatile as you want it to be. You have a couple choices with inventory, the easiest for you would be to give each piece of jewelry a stock or item number, and record your cost as a whole. If you use it as an assembly then you would have to record each part of the finished jewelry piece individually. I don’t do that, in fact I record the piece as a whole and the sale at the time it is sold.

By recording the final jewelry piece as a part, then you can record the cost of sale and the sale price, if you want, all at the same time. That procedure will set up your inventory and that is really all you need.

Under your income accounts you can list consignment sales as well as your own sales but it isn’t necessary. Splitting up your different revenue avenues is nice for tracking. Q-books pro is a lot more detailed than the basic version but not more difficult so don’t be overwhelmed, just slow down and read the help files. There is a wizard program within Q-books that asks you all the questions when you set up a business.

Please be careful with Sales and Use taxes. Your state tax offices will explain everything you need to know. There are very stiff penalties for collecting sales tax and not paying it on time or reporting the tax.

If you got a business license from your state they should have provided all the information with your license. If you don’t understand all the details then contact someone in your state and/or local government ASAP.

Thank you both so much!
by: Kimberly

Hello Rena & Rita!

I just wanted to thank the both of you for responding to my question! Since writing the initial message I have calmed down quite a bit! I have also contacted my state for the vital information that I needed to know.

I can now contact the person who sells my jewelry and help them understand that they indeed are the one who pays the sales tax! :)

Rita, I am wondering... if you record your jewelry on a whole, how do you keep track of the costs of making the jewelry for end of year tax purposes? Perhaps your accountant doesn't ask this total of you? I am extremely curious! I would love to be able to record my jewelry as a whole rather than having to record them as assembly items.

Thanks again so much!

Sincerely, Kimberly

By the way, this is one of the most helpful websites ever! :) I absolutely love it! Thanks for taking the time to create something so substantial!

Decisions, Decisions
by: Rita Juhlin

Kimberly, I'll try to give you some perspective without writing a book. First let me explain that I am an accountant and have been for more years than I care to admit.

When you start a business you have to make decisions. Number one, are you a corporation or a sole proprietor. I would "assume" (hate that word) that you are a small operation and you won’t have an enormous amount of expense and sales; at least to begin with so let's go with sole proprietor.

If you go with the sole proprietorship and file your taxes on a "cash" basis you show the expense as it happens and the sale as it happens. Cash in- Cash out. (The Kiss Theory).

Then you have to decide how detailed you want your records, keeping in mind the only thing the government is interested in is how much they can take away in taxes so expenses are a good thing unless of course you just love paying taxes (probably not).

Where the majority of new people get hung up is thinking about how to report inventory. You don’t have to report inventory.

Let’s pretend for the year of 2010: If you buy 100.00 worth of supplies; make 500.00 worth of jewelry; then sell 200.00 worth of jewelry. Your (cash in) 200.00 less your expense 100.00 (cash out) equals $100.00 in net income or Profit and Loss (P&L).

The fact that you have 300.00 in finished jewelry makes no difference. For tax purposes you have already claimed the expense. Let’s say in 2011 you don’t buy any supply and you sell your 300.00 worth of jewelry pieces. You have no expense of supply so your P and L is $300.00 and that’s what you pay taxes on. Of course there are other expenses but that is not the point.

How you keep track of the cost of each piece can be as simple or complicated as you want it to be. I know in my head what I have paid for supply; should I forget I refer to a receipt. If you need a reference just make a list on a spread sheet for a quick reference.

When you get into a "full set of books" (assets, liability and owner equity) it is a whole different ballgame. When you start getting in to Cost of Sales, you will have to record each "supply" delegate each cost of supply to each piece of finished jewelry. Running a business with a full set of books is very time consuming. Books need to be kept up to date daily.

If you buy 5 strands of beads, 5 clasps, and some stringing material and you post that purchase, the beads and the clasps would go into inventory (asset) not into expense. The stringing material would go to an expense account.

(continued . . . )

( . . . continued)
by: Rita Juhlin

As you put your items into inventory you assign an item number. When you post the sale you would have to do one of two things:

One, you can post a total amount and then post for example, one strand of beads with the assigned item number, one clasp with the assigned item number.

Two, if you post as an assembly by combining pieces of your supply inventory into a "piece of jewelry"; you don't post each piece of supply inventory, however you would have to set it all up as you complete each piece of jewelry. Your supply inventory would then turn into finished pieces of jewelry inventory.

Apparently I confused you in a previous post, an assembly is a "whole" piece of jewelry.

If you look at the invoice set up in Q-Books you will see items, # of items, price etc. all in columns. What you don’t see is that by posting that 1 strand of beads and 1 clasp; the amount you paid for each strand and clasp is being expensed as a cost of sale, and it’s also reducing your inventory at the same time.

If you want to test that just check the inventory balance after you post, then go to your reports and click on financials then P and L, you will see the cost of sale. Then look at your balance sheet, you will see your inventory asset reduced.

You have choices and you need to make decisions.

Good luck, hope this helps.

--
Rita
Websites Work
Home Based Jewelers
Private Stock Jewelry
Private Stock Jewelry Blog

Another Accountant's view
by: Ann Nolen

Hi all,

Rita, funny that we both are accountants. Haven't met you but I feel like I know you from all your wonderful feedback on this site! I also have been an accountant for years, and your advise was very good. It really is about making decisions and being consistant. I decided that I really didn't want to keep very detailed info, just like Rita, so I tried to simplify things. So when I buy things like beads or components, I make sure to mark the price I paid for them. Sometimes when I go to bead shows I take come 3x5 cards with me and make notes when I buy things. It is amazing how much I forget if I don't do this. When I make the piece of jewelry, that is when I look at the paper notes and calculate how much the item really cost me. That is the amount I put in my books for the "cost" of that piece of jewelry. Also helps me to decide what the sales price will be.
Some items I don't think are worth tracking. For example, wire and paints. Those I just treat as "expenses" for my taxes (category: supplies) and don't add them to the cost of the item for inventory. This really has reduced the amount of time I spend on bookkeeping. I really want to spend my time creating, not working, so these small steps have really helped me with that.
By the way, one last piece of advise. I followed Rena's advise and take a photo of everything I make. I am so glad I have done this for so many marketing and customer reasons. Although I have never been audited (so far), I think it will also be good documentation for the costs I am claiming. A picture is still worth a thousand words.
Thanks again for listening!

Ann Nolen
www.AnimalCoin.com

How I track my "cost of goods sold" per piece
by: Pam

I'm a bit old-school, still keeping paper logs and records. For others like myself, I'll share what works for me.

Before putting away supply purchases, I calculate "per unit" prices, and jot this down, with vendor and reorder #, on a slip of paper. This slip goes right into the storage container with that supply item. Wire is figured by foot as well as by inch costs. Having ready access to unit prices helps in figuring production cost, as well as comparing vendor prices.

When a new design is created, I record pertinent info on a couple of forms I've worked up, which I file in a binder - handy and portable. Here's what works for me:

1) Item Number Log: List of consecutive item numbers with brief description of the piece. Each design, including OOAKs, gets it's own number. These numbers track items through production, sale and tax records, and help track strong sellers from weaker items. I include these in online listings, on price tags, and on sales slips. Every item is easily tracked from soup to nuts, creation through tax records, whether produced in batches, or OOAK's.

2) For each design, I also fill out my "Production Cost and Pricing" form. Each design gets a separate form. The top section includes:

Item number, date design was created, detailed description of item (great for later writing up online listings!)

The center, main section details the component costs. A line for each component includes:
Component (what it is)
Vendor and Vendor's item number (for reorder)
Quantity used x unit cost = Tot cost of component

These component line costs are tallied below to determine the total cost of producing one unit.

Finally, this form includes pricing calculations. Everyone has their own pricing formula, but all include production cost, and this is a helpful place to record one's formula and any helpful notes. Pricing may vary by venue, wholesale/retail pricing, the passing along of cost savings, or the impact of what the current market will bear. This is a place for making notes and recording baseline or average pricing for this item.

To the more tech-savvy, I must surely sound archaic, but this old-school system works for me, and is portable - helpful when I'm working all over the house!

Thank you Rita!
by: Debbie

Rita thank you so much for your helpful info. My accountant told me that I needed to count all my inventory at the beginning of the year and again at the end of the year. And here I was...thinking I had to count every single bead and finding! Counting it as a whole piece sounds soooo much easier!

So much good. . .
by: Rita Juhln

So much good comes from one good question.

Pam, I doubt you are any more “old school” than I am. I actually prefer a manual set of books over any computer program.

Today, with clients needing so many reports from data to make business decisions it just takes too long to do it manually.

Being able to pin-point a problem area or get fast answers via very detailed reports; you can’t beat a program like quick books for inventory, sales tax, sales reports etc. It does take some time to enter the information and it can be a real pain. Comparing the time to enter the data to a pile of papers at the end of the year or even month end pays in a reward of time saved with little to no frustration.

Once I disciplined myself to enter my invoices for my jewelry supply, I really know day to day if I’m making money, breaking even or losing money on every piece of jewelry I make. It also helps me make a decision about how much I need to charge.

As you probably know Millie of gotrocks4sale.com and I are good friends. I convinced her to take care of her bookkeeping with Q-Books and she thanks me all the time. With a click of a button she gets a P and L from when she started two years ago. Now that she’s on-line it has made a world of difference. Combine that with Turbo tax and it takes two clicks and her taxes are done and the old saying goes; “Time is Money”.

What ever the solution, manual or computerized, what works for each individual is the best way.

software for jewelry makers
by: Silvered Leaf

Hi Kim,

I just wanted to let you in on a little secret that just might help you in your dilemma.
I use software designed specifically for the jewelry designer - its called Jewelry Design Manager and their website is here: http://jewelrydesignermanager.com/

There are three different versions of the software, but the Deluxe version links to quickbooks. Within the program, there is a Consignment module where you can keep track of all the items you have at different consignment shops and all the particulars involved with the consignment agreements. It lets you add, replace and delete items as needed.

JDM (Jewelry Design Manager) also keeps your component inventory complete with pictures, price, and amount... keeps your finished product (jewelry) inventory complete with pictures, price, and amount... and helps to price your jewelry too. There is also a module for invoicing, keeping track of vendor info and customer info, and it was created by a woman who used to design and sell her own jewelry (but now I think she is focusing on her software company and her fabulous software).

There is so much you can do with JDM, but in order to be able to actually link the JDM software with quickbooks, you'll have to get the deluxe version as its the only version that offers this feature.

I hope you check out the JDM website and see for yourself what it can do for you.

Good luck to you...

Silvered Leaf

Pam
by: Anonymous

I took a look at the Jewelry Design Manger software awhile ago online - it did look good. I think maybe if I took a class or something, or you know, actually took time to sit down with someone (instead of a book) it might sink in!

If we can find time, hubby and I should both do this.

Oh my goodness!
by: Kimberly

Thanks everyone! I just revisited this post again today and my mouth dropped open with such amazement at all of your responses! I am going to reread each comment and see if I can finally come up with a fit that is just right for me! I will let you know what I decide!

Most likely, I will have more questions! :)

This website is SO amazing!!!!! :)

Thanks again and again!!! :)

Still Confused!
by: Kimberly

You would think that with all of this advice I would have had an "A Ha!" moment by now, however, I am still confused!

Rita wrote as follows, "When you get into a "full set of books" (assets, liability and owner equity) it is a whole different ballgame. When you start getting in to Cost of Sales, you will have to record each "supply" delegate each cost of supply to each piece of finished jewelry. Running a business with a full set of books is very time consuming. Books need to be kept up to date daily."

I am wondering if it is acceptable that I figure out the costs for making each piece of jewelry in a notebook and then just type in the total into Excel spreadsheet? Or should I some how break down each component using quickbooks?

Rita also wrote that, "If you buy 5 strands of beads, 5 clasps, and some stringing material and you post that purchase, the beads and the clasps would go into inventory (asset) not into expense. The stringing material would go to an expense account."

I am wondering why the stringing material is considered an expense and not the beads and clasps?

Am I right that if we were using the money in versus the money out approach... that all of the supplies to make the jewelry would be considered an expense?!??

Thanks Again Everyone!!! :)

Hope this helps-Part 1
by: Rita Juhlin

1. “I am wondering why the stringing material is considered an expense and not the beads and clasps?”

Beads and Clasps can be considered inventory (asset) if you are working with a full set of books. You usually don’t buy one bead or one clasp. Stringing material is more of a supply. Say you buy a 30 yard spool of stringing material for 6.95. You use 20 inches for a necklace, the cost is so minute that it just doesn’t make sense to concern yourself with it. I mean if you want to divide it up into cost per inch and apply it to the cost of the necklace you surely can but that’s going way beyond practicality; just write it off as an expense.

Part 2
by: Rita Juhlin

2. “Am I right that if we were using the money in versus the money out approach... that all of the supplies to make the jewelry would be considered an expense?!??”

Yes, and then you would have no assets; but remember you only write it off once.

Part 3
by: Rita Juhlin

3. “I am wondering if it is acceptable that I figure out the costs for making each piece of jewelry in a notebook and then just type in the total into Excel spreadsheet? Or should I some how break down each component using QuickBooks?”

You have to decide which type of bookkeeping you are going to use. If you want to figure out the cost for each piece of jewelry and you already have QuickBooks then I would use quickbooks.

Each time you purchase something whether by check or credit card you are going to do one of two things. You either expense it out or set up an inventory. If you want to keep a separate tally of your cost per item so you know how much each piece is costing you that is fine but you don’t record it in Quickbooks when you sell it because you have already expensed it.

If you enter each component as inventory then you have to remove it when you sell a piece which is made up of components. So your sales invoice shows a list of components used (by stock number and description) to make that piece that you just sold.

Another sales tax question!!
by: Anonymous

Okay, so lets say for example, a store sells a piece of my work for $100. My city's tax rate is 9%. So the store collects $109 from the customer. Our split is 80/20. So I understand that they'd owe me $80 and they keep $20 and they have to pay the $9 sales tax to the government...but what do I have to do to my books to show that the piece is sold and I don't owe any taxes?!!! Arghhhhh....this is so confusing!!!!! :) Thanks for any help!!!

Arghhhhh !!!
by: Rita Juhlin

The absolute best advise I would give is: Call your city tax assessor to make sure you don't owe any tax.

Personally I would call this a resell, so only one collects the tax, but. . . . .

Every city, state, county I've ever worked in has their own little quirks. Call them.

As far as your books; you should set up a separate income account for consignment sales.

sales tax
by: Anonymous

I want to sell my jewelry at a hair or tanning salon. Does the salon need a special license to sell and collect jewelry?

Business Lic.
by: Rita

It should be covered by the shops business lic. however, to be sure, you can always check the state law where you live on the Internet.

Larger city governments may have there own laws, so it wouldn't hurt to check there too.

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