This question is for a client of mine. She owns a licensing company which includes filing for licenses for people that sometimes require a fee (not a fee to her, but a fee to file, she just does it for them). She charges a fee for her services, and then passes on that filing fee to her customer as well. Apparently, she charges for everything first, then files for them. Occasionally, she overestimates how much it will cost to file (the fee she passes on to her customer), and then it would seem she would owe her customer a refund. Rather than issuing a refund, she'd rather just keep the overage. What would that be called and how would that be recorded in her books? I would think it would be income, but is it "other income" in her chart of accounts? Or can it be given any name she wants? Also, would she then be required to pay sales tax on it? Originally, she didn't charge sales tax on it, but since she's accepting it as income would she need to report it on her sales tax report and pay sales tax on it?
USA Classifying Income
- Thread starter Amy
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smallbushelp
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Not sure if you still need help with this but for what it's worth, here's my 3 cents worth. First of all, what state are you in? Most states don't require charging sales tax on services. Second, is it understood between the parties or somewhere in writing that your client gets to keep any portion of a filing fee that is overestimated? That could be a problem. Lastly, if she is going to retain the overage then yes, it is income and can be called whatever works best for your client but it shouldn't be "other income." It should be included with any other income accounts.
I would not create a separate account for the overage. For example, if I were to separate "filing fee income" from "licensing services income," I would just post the full amount to filing fees and leave any overage there. But if your client would like to know how well she is estimating and just how much in overages she is collecting every year, then you could create an account called "overages" perhaps. But you would have to post an adjusting journal entry every time there was an overage in order to book it to that account. Not worth the trouble in my book.
I would not create a separate account for the overage. For example, if I were to separate "filing fee income" from "licensing services income," I would just post the full amount to filing fees and leave any overage there. But if your client would like to know how well she is estimating and just how much in overages she is collecting every year, then you could create an account called "overages" perhaps. But you would have to post an adjusting journal entry every time there was an overage in order to book it to that account. Not worth the trouble in my book.