UK Cost of Goods Sold vs Admin Expenses

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Hi there, I’m struggling to know whether to put some things down as admin expenses or cost of goods sold. I have been running a freelance web design business for a year now and I pay for a web hosting server to use for my clients’ websites. So will this go down as an admin expense or cost of goods sold? I am not sure because I need this or my business would not be able to exist but it also provides the client with a service that I am charging them monthly for hosting.

Also I pay for software/plugins to add functionality that are used on each and every website not for a particular client so does this mean it's an admin expense or COGS?

Also is it true that any PayPal fees I incur when being paid need to be put down as COGS because I wouldn't be paying the fees unless I had already made a sale?

Any help would be greatly appreciated. Thank you.
 

Counterofbeans

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Please describe your business more, focusing especially how how revenues are generated.
 
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Hi Counterofbeans. I'll try my best to explain and hopefully I will give you what you need.

When I create a website for a client I will invoice them for the initial creation of the website which will be paid online via either PayPal, Stripe or GoCardless (which means I will incur some charges for using these payment gateways). So also, I'm not sure whether to put these charges down as expenses or not?

The client will then be billed monthly via an online invoice which must be paid each month via any of the same payment gateways listed above. This monthly fee is for web hosting, backups and website maintenance.

I have paid for some software/plugins which have a developer licence which means I can use them on all my client websites to add functionality/tools to the websites.

On occasion it may me required to purchase a plugin that is specific to a certain website so would this be listed at COGS?

I hope this has explained enough for you but please let me know if you need to know anything else. Thanks.
 
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Dear Cassify,
Before specifically answering to your queries let us take a brief look on what COGS is? Briefly COGS is “The direct costs attributable to the production of the goods sold by a company”. In your case any cost directly link to provision of services to your clients. Now following is reply to your queries:
Web hosting: With reference to definition cost of Web Hosting is directly attributable to provision of services to your clients, which means it must be shown as Cost of Services provided. For analysis purposes you can apportion the said cost per client according to the proper basis.
Plugins Cost: If the cost is associated specifically to the website/client service. It will be provided in the Cost of Services provided. I do not know the exact nature of these, But if this relates to a certain plugin that is necessary for many clients as well as your own systems then if you are treating these as long term assets their amortization will be allocated between COS and Admin Cost as per their usage.
Payment Charges: This is debateable as per its pure nature. If it is like we incur bank charges in normal businesses, it will be treated as finance expense or admin cost. If you can reliably measure and attribute these charges to certain clients it can be put in COS.
Hope above reply will clear all doubts, If you have any further question, feel free to ask. :)
 

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