How do I tell which payment method paid for a ticket and why can it only be inferred from a payment allocation report?

We are often asked how to find out how many tickets were paid for using various payment methods (for example: Visa, Master Card, cash, etc.). There is definitely a need to do so for many reasons: the calculation of discounts for royalty deductions, or to charge back to renters a portion of the ticket sale, when their patrons use credit cards.

There is a method to find a very very close (but approximate) answer for business purposes. You cannot find an exact answer of '1 ticket paid for by visa' for the reason illustrated in the example below. If you are trying to manage your receivables, please refer to this web page that describes the use of Accrual Accounting in Theatre Manager.

 

Getting a reasonable approximation

The reasonable answer can be obtained using the Revenues by Payment Method-Ticket Based report or looking at one of the royalty reports. The process for these reports are to:

• Run the 'Receivables-Based on Order Balances by Event' to see if anybody owes you money for the event. If there are any receivables, clear them out or pay them off.
• Find all the orders for the tickets you need the answer for - e.g. you want the calculation for all tickets sold at a particular show, at the end of the run, to obtain credit card discounts paid - and which can be deducted from royalty payments.
• Theatre Manager then finds all the payment methods for the orders and allocates the payment method among the tickets in the order.
• The allocation is then printed on the report. Please refer to the examples below to see how this can work.

 

Why can't the number be exact?

We will use an example of why the question being asked is not available in ANY accounting system. That is - specifically what payment method paid for an item out of inventory cannot be accomplished in accounting system. It can be inferred, but there is no way of ascertaining 'fact'.

First, Theatre Manager uses accrual accounting. This means each payment decreases accounts receivable. Each purchase increases accounts receivable. In a perfect world of buy one ticket for $10 and pay $10 in cash, it can be inferred that 1 ticket was paid for with cash.

 

What if the transaction gets complicated?

Now we will use a real world example. A patron purchases a play pass for $100 and donates $50 at the same time. He is sharing the pass with a friend. You receive $50 from the friend by visa (the friend donated separately earlier in the year) and the patron pays $100 with Mastercard. Question: How many tickets were paid for using visa? Answer: It can be inferred:

• None because it is a play pass and they have not yet been used.
• In fact, if they are never used, the answer will be zero.
• A possible answer is 50/150 = 33% of the pass - as that is the exact ratio of payments made on this order and you don't know the patrons intent.
• A possible answer is 50/100, if you knew the patron's intent.

So far, there are 4 possible answers for the transactions. All, are in fact wrong. The simple answer is that when the pass was purchased, it increased receivables because something was sold from inventory and the payment decreased the receivable.

Time passes and the patrons use the pass to buy tickets. At this time, the payment method for the ticket is part of the pass and we are now a few steps removed from the original transaction. If the patron allows other patrons to use the pass things are further complicated.

Finally, the patron may decide they can't use all the pass, so they turn it in for a donation receipt or you write it off to un-earned revenue.

These kinds of transactions happen with amazing regularity at any theatre company.

 

How do other industries do this?

They do not. If you pick any another industry - such as a lumber store where you buy some lumber, some screws, a new power tool and pay with a gift certificate you got for christmas and top it up with some cash in your pocket and then use a debit card, you could be asking the same question.

Did my gift certificate pay for my cool power tool, or did it pay for my screws? again, the answer is: YOU CANNOT PROVIDE AN EXACT ANSWER OF WHAT PAID FOR EACH INDIVIDUAL PIECE OF INVENTORY (only an approximation).

 

Summary

• In an inventory management system, it is never possible to clearly determine how each item is paid for that was removed from inventory.
• There is no accounting system that we know of that provides this capability in any of its reports.
• Theatre Manager recognizes that there is an advantage to being able to approximate the answer with a degree of precision and provides report to allocate payments to tickets at the end of a run for purposes of royalty deductions. These are accurate to 4 decimal places and fractions of tickets.

If you require further clarity on this concept, please consult with your accountant or auditor.