How much income should be recorded if the products sold are consumed for household purposes, given as gifts, or sold at a low price?

If an individual sells goods (inventory) and the goods are:

• Consumed for household use
• Donated (given to someone else free)
• Transferred at a low price (sold for partial payment)

How should the amount be recorded as income?

In the case of household consumption and gifts

・Household Consumption

・Gift

In these cases, you must essentially record the product as a sale and account it as income.
(This does not apply to distribution of promotional items, such as samples.)

The cost of the product is recorded even if you have not received any money for it.

By recording the product as a sale, you can reconcile it with the recorded cost.

In this case, the normal selling price is generally recorded as income, but the following exceptions are permitted.

Exceptions

The greater of the following:

・Acquisition price

・Normal selling price x 70%

Comparing to the acquisition price means that you must record income at least equivalent to the cost.

For example, suppose you use household consumption for a product that sold for ¥1,000 and purchased for ¥800.

When selling to an external party and calculating household consumption according to the general rule, your profit is:

¥1,000 - ¥800 = ¥200

On the other hand, if you calculate income as 70% of the sales price under the special rule,

¥1,000 x 70% - ¥800 = △¥100

This is below cost.

If goods are given away for free for household consumption or as gifts, you are not permitted to record them as income below cost.

You are required to record them at at least the acquisition price.

¥800 - ¥800 = ¥0

In the case of a low-price transfer

In principle, even in the case of a sale at a low price, it is still recognized as having been sold at the normal selling price.

However, since the sales proceeds received have already been recorded as income, the difference between:

Normal selling price - Actual selling price

is recorded as additional income.

However, as an exception,

Normal selling price x 70% - actual selling price

is permitted to be recorded as additional income.

Unlike household consumption and gifts, below-cost prices are permitted.

Since products may actually be sold below cost, there is no comparison with the acquisition price.

Please note that if the reason for the low price is:

• Because the product is seasonal or out of date
• Due to advertising or a sale

it does not qualify as a low-price sale.

Concluding remarks

This time, we explained how to account for income when inventory is used for:

• Household Consumption
• Gift
• Low-Price Transfer

It's important to note that income must be recorded even if there is no inflow of cash.

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都築太郎税理士事務所/Tsuzuki Taro Tax Accountant Office

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