using an account like 'short term loans', pay the expense to your supplier

  account=short term loans, no tax

create a sales invoice for what the employee owes you

  account=short term loans, no tax

create a receipt to pay the invoice when the employee pays you

LaChapa,

I am a big believer in consistency. Your vendor sent you an invoice in your company name, so post it as you would any other vendor invoice and subsequent payment.

Your employee bought something from you (because she gave you the cheque), so she is now a customer. Post a customer invoice and receipt.

Roger's suggestion will work assuming the amount paid to you by the employee/customer was exactly what was billed to you from the vendor, so the sales tax is a wash, but why change your procedure?

if i do this, do I still add the sales tax? I mean it goes in and out so it cancel itself no?

Another weird question, if i do this transaction like a normal one, would you use the "suspense account" to post the expense and same account to post the receivable so it doesn't show up in my sales numbers?

Again, why change procedures in recording purchases and sales?  If you normally include sales tax, then do it.

Why record anything if the expense matches the revenue?  

LaChapa said:

I mean it goes in and out so it cancel itself no?

I am just giving you a perspective to help you work with the processes you come across.  If you break the whole process down, and based on what you have given us, it is the same as any other purchase and sale.  What is different that would cause you to do your data entry different?

You have not told us the exact dollars of the purchase and if there is sales tax.  You have not told us what your employee reimbursed you, and if it covered the sales tax, let alone the whole total.  We are all still assuming the purchase and sale both includes the same sales tax and total dollars.  My concept covers you regardless of the dollars.  It also allows you to do your work more efficiently and effectively without any hard thinking.  However, every once in a while, we are thrown some "different" things that are not really different, so we just have to put them in perspective and then post in the best manner possible.

Does anyone else see any real differences in this scenario that make it different from a regular purchase and sale?

Don't forget you will have to satisfy an audit if the CRA decides they want to audit you.  If they see you not charging tax on a sale "because it is a wash with the purchase", you will have to spend a lot of time proving it.  If you can't find that purchase invoice, they may refuse it and you may have to pay them more sales tax, penalties and interest.

When you do your sales tax return, you record your total sales.  The CRA sees that on a regular basis and if your GST collected is not the correct percentage, then they may give you a call. eg. if your total sales are $10000 and you normally charge 5% on all sales, the GST collected should be in the neighbourhood of $500 on your remittance.  If they see $300 because you decided to wash the purchase and sale without charging sales tax, they will ask why you don't have the correct amount of GST collected.  There are many good reasons why the numbers don't match (eg. sold to the US) but I am not sure they would like the "but my purchase was the same as what I sold it for, so I didn't bother to record either" reason.  But I could be wrong, I'm not an auditor, I just don't like annoying them :)

While I understand where Roger is coming from in his suggestion and like I said, the math does work out, I would not do it that way in any of my client's books. You have said the purchase was to sell to your customer. Expense it as cost of goods, and sell it as revenue, even if it is the same dollars. Roger's suggestion does not record any expense or revenue.

If you really want to keep employee purchases and sales separate from the rest of the information on your income statement, you can set up a revenue account for employee sales and expense account for employee sales expenses. But I probably wouldn't if the amounts are not significant.

If the employee was really buying from your vendor directly, you would not be involved. They would have billed your employee and the employee would have paid them.

Hopefully someone else will give you their perspective as well.

my assumption is the employee went to the supplier and bought supplies for personal use, charged to the business
the company pays the bill using funds loaned to the employee (no taxes) and the employee is paying back

but I see Richard's point of treating as a regular business purchases (COGS) and regular sale to the employee (who becomes a customer)

Yes thank you all for your help, I did as Richard said and it seems to work fine. I have written notes in both so I can cross reference if there are any questions later on.