How to Trade (on the books)

[Trouble]

People regularly want my beer in trade for products/services, and I would like to know if anybody has experience in how to write these things up so they're above the board and on the books?

The way it previously was done greatly irritated the bookkeepers and threw a wrench in the whole operation for a time being.

Does it require checks being written, or can invoices just be exchanged?

Thanks for any advice you can offer,

Chad S. Roberts
Brewer
Snipes Mountain Brewing
Sunnyside, WA
(509) 837-BREW

[kyle.carbaugh]

Financial reporting: you should recognize the value of the goods you're trading at fair value (i.e. typical sales price for the goods), and recognize the value of services (i.e. the typical price you'd pay for the services) as expense. The best way to evidence this is through issuing an invoice with a zero balance due, and receive an invoice from the service provider with a zero balance due.

References (which I'm sure you're literally dying to look at) -- SFAS 153/APB 29

Taxes: check with your tax accountant for specifics on your obligations for reporting an tracking, but here are some resources for a good start:

http://www.irs.gov/businesses/small/article/0,,id=113437,00.html

http://www.irs.gov/businesses/small/article/0,,id=215975,00.html

Cheers!
Kyle

[Trouble]

Thank you so much! The trouble I'm having that I can't necessarily find info on here is this:

Service/Goods Provider offers me X amount of product in exchange for Y amount of beer. However the value of X outweighs the value of Y by around $300, which I am sure he is aware of, but in financially unaffected by the loss of Z.

Is there a clean and easy way to accomplish this above the books?

Thanks again for your help, and I am reading those IRS pages and speaking more with the bookkeeper.

[kyle.carbaugh]

Accounting!

Thank you so much! The trouble I'm having that I can't necessarily find info on here is this:

Service/Goods Provider offers me X amount of product in exchange for Y amount of beer. However the value of X outweighs the value of Y by around $300, which I am sure he is aware of, but in financially unaffected by the loss of Z.

Is there a clean and easy way to accomplish this above the books?

Thanks again for your help, and I am reading those IRS pages and speaking more with the bookkeeper.

No problem for the earlier scaled back response. Since you came back asking for more (), here you go!
Disclaimer: the example below is not intended to publicly discuss specific price points or production costs.

Here's the narrative:
Brewer barters 1x 1/2 BBL for 3 hours of electrical work. A half BBL retails for $100 and costs $60 to produce (basis), whereas electrical work retails for $75 per hour (or $225 total).

The brewer/brewery should book:
Revenue of $100 (Credit)
Accounts Receivable of $100 (Debit)

COGS of $60 (Debit)
Reduction to inventory of $60 (Credit)

Expense of $225 (Debit)
Accounts Payable of $225 (Credit)

Since it's a nonmonetary transaction, you remove the receivables and accounts payables balances with the delta going to other gains and losses.

Accounts Payable for $225 (Debit)
Accounts Receivable for $100 (Credit)
Other Gains and Losses for $125 (Credit)

For tax purposes, there are three things considered in the transaction: 1) the total amount of 'income' received (the $225 in services), 2) your 'basis' in the beer traded (the $60 in costs), and 3) the deductibility of the services received -- in this case, electrical services would likely be considered 'normal and customary in the ordinary course of business'. Assuming the electrical work meets deductibility requirements, the tax effect would be revenues of $225 ($100 in revenue, $125 in other gains), expenses of $225 and a net tax 'liability' (i.e. the amount you would have to pay the govt) of $0.

The electrictian should book (presuming no materials costs):
Revenue of $225 (Credit)
Personal expenses (i.e. meals/entertainment/misc sundry) of $225 (Debit)

In this case, the IRS is likely not going to rule that beer is a 'normal and customary expense in the ordinary course of business' for an electrician (although I'm sure the argument has been made in the past), therefore calling into question the deductibility of the expense.

I bet you can't guess what my day job (for now) entails...