Accrual of eBay Fees

[jaminv]

I am the sole proprietor of a small business that sells small retail items on eBay. Most of my costs per transaction happen at the point of sale, but eBay fees are billed on the 16th of every month for the 16th of the previous month through the 15th of the current month. A large percentage of these fees are final value fees that can be linked to a specific sales and I consider to be COGS. The remainder, listing fees, are considered a marketing expense, but typically amount to about 5% of a monthly bill.

The fees for all sales from December 16th through December 31st (and on until January 15th), will not be billed until January 16th next year. December has been our busiest month, so there have been substantial sales in that period, which will likely continue for the next few days. Our net income is pretty small in comparison to our total income (about 5%; we operate on a lot of low margin transactions), and those eBay fees are sometimes larger than our actual profit. Paying taxes on profits we didn't actually earn would be a pretty big hit to a small company without a lot of cash available. I'd like to accrue those expenses in December based on the expected bill (I can get the exact amount from eBay at any time).

I'm fairly certain this is all legal. I know that companies accrue expenses like payroll all the time. The numbers are all small enough that they'd likely not raise an eyebrow anyways, but I would like to make sure that I'm doing everything right.

This isn't actually a tax question, though. It's a general accounting question because I'd really like to accrue those expenses every month. My accounting software (Quick Books) doesn't allow me to end each fiscal month on the 15th, and I'd really like to see some reports like "profit by month". Right now it's skewed to make sales spikes look even bigger, and the months after them smaller.

Further complicating things, these expenses can actually be linked to an individual sale. In QuickBooks, you associate it with a customer, which amounts to about the same thing. The actual bill can be broken down line-by-line, and the COGS expenses can actually be linked to a customer. If I don't accrue it per-customer, the per-customer data won't always be in the same month. A monthly report like "income by customer" wouldn't give me the information I want. I wouldn't be able to see the most profitable sales for the month, because half of them would have inaccurate numbers.

I could import eBay's account statement (not yet billed) at the end of every month and link each item to the appropriate customer. I'm not really sure what account I would hit. I'm a little fuzzy on how an accrual against a COGS account would work.

I could make it easy on myself and split the bill into two bills and pay them both at once. But then it looks like there's actually two bills and not an accrual against a bill, which might appear fraudulent. I'm pretty sure something like this wouldn't scale well as my company grows.

Thoughts? Suggestions?

 

[jaminv]

My initial guess is this:

Receive the December 15th-December 31st statement as a bill. Debit each final value fee directly to the COGS account, and associate them with a customer.

The bill will hit Accounts Payable, which I don't want, so I would immediately pay the bill against another liability account (I still owe money, I just haven't been billed for it yet, and the account name should reflect this). The account would be called something of the nature of "Unbilled eBay Fees".

When I receive the actual bill, the first half of the bill would be credited to Unbilled eBay Fees, and not associated with customers. The second half of the bill would hit COGS normally, and be associated with customers. The bill would hit Accounts Payable for the full amount, which we want, and can be paid normally (balance transferred to a credit card). This bill should also zero out the Unbilled eBay Fees.

The only problem I see is that the unbilled eBay amount would show up on the balance sheet, but not the income statement. It would look like normal COGS, and although its in a sub-account that specifies that it is an eBay fee, it would look no different than fees actually billed. I could presumably put them into another account upon the first entry, and transfer them (somehow?) to the normal COGS account on the second entry. I'm not 100% sure how that would work, though. Suggestions are welcome.

Does this seem like a legitimate accounting technique? I'm not trying to hide anything, I'm just trying to get my fees into the period in which they were incurred. Even the eBay bill dates the individual items. It's just a problem because those dates straddle accounting periods. Any help would be appreciated.

 

[Triest123]

My initial guess is this:

Receive the December 15th-December 31st statement as a bill. Debit each final value fee directly to the COGS account, and associate them with a customer.

The bill will hit Accounts Payable, which I don't want, so I would immediately pay the bill against another liability account (I still owe money, I just haven't been billed for it yet, and the account name should reflect this). The account would be called something of the nature of "Unbilled eBay Fees".

When I receive the actual bill, the first half of the bill would be credited to Unbilled eBay Fees, and not associated with customers. The second half of the bill would hit COGS normally, and be associated with customers. The bill would hit Accounts Payable for the full amount, which we want, and can be paid normally (balance transferred to a credit card). This bill should also zero out the Unbilled eBay Fees.

The only problem I see is that the unbilled eBay amount would show up on the balance sheet, but not the income statement. It would look like normal COGS, and although its in a sub-account that specifies that it is an eBay fee, it would look no different than fees actually billed. I could presumably put them into another account upon the first entry, and transfer them (somehow?) to the normal COGS account on the second entry. I'm not 100% sure how that would work, though. Suggestions are welcome.

Does this seem like a legitimate accounting technique? I'm not trying to hide anything, I'm just trying to get my fees into the period in which they were incurred. Even the eBay bill dates the individual items. It's just a problem because those dates straddle accounting periods. Any help would be appreciated.

=> The final value fee is not the COGS, as this cost is associated with "sales" not the "purchase". The cost of sales is the inventorial cost which is incurred before or at the end
of the completion of "finished goods".

The final value fees is treated as "selling and distribution expense" as it is recognised only
when the sales is taken place.

You can make an provision for this expenses based on your monthly sales amount
under the matching concept.