Accounting: Should a fee on an amount payable be applied in AR or AP account?

Question

An application I'm building has a simplistic double-entry accounting component to it to keep track of funds passed owed to various parties. I'm unclear on how certain entries should be applied. Take the following example: * A soccer referee works a game and earns $50 from the league * He then fails to submit a game report within the time limit and is assessed a $10 late fee. * The referee should have a total of $40 owed to him. From the referee's perspective, should both of those transactions affect his Sales and AR accounts? * $50 CREDIT to Sales account * $50 DEBIT to AR account * $10 DEBIT to Sales account * $10 CREDIT to AR account Or would the first be Sales/AR and the other be Expenses/AP? * $50 CREDIT to Sales account * $50 DEBIT to AR account * $10 DEBIT to Expenses account * $10 CREDIT to AP account Or should it be something else completely?

Answer 1

An entry should be booked once the referee performs his services. Depending on which set of books that you are keeping track of I have provided the following entries to record assuming the accrual method is used:

From the referee's books:

1. Debit: Accounts receivable $50 2. Debit: Late fee expense $10

Credit: Service revenue $50 Credit: Accounts receivable $10

From the company's books who is paying the referee:

1. Debit: Wages expense $50 2. Debit: Accounts Payable $10
2. Credit: Accounts Payable $50 Credit: Misc. income $10