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I disagree. Shipping, as collected on an online sale, is no different than sales tax collected with a sale. That is, it is a liability that should not be included in the net from a sale. The shipping fee must be paid to the shipper (USPS,UPS,FedEx) when the goods are shipped to the customer, which, more often than not, is higher than calculated and collected from the online purchase. Otherwise, the total collected (including shipping) is subtracted from the COGS to show an inaccurate net from sale. The shipping fee needs to be ignored from net, not expensed.
Yes, we want to track both the shipping income AND the shipping expense. I prefer to isolate my shipping income, by creating a correlating income account called "delivery income" or "shipping income" ..then down under my COGS section, I will see my shipping costs. That way you will be able to see if you are making a profit on shipping, or if you are losing money on shipping.
If you set up your customer invoice item to go only to an expense acct or COGS account, then what you are really doing is REDUCING your expenses or COGS totals on your Profit and Loss report. You actually can set up one item to cover both shipping purchases/expenses and shipping income by clicking the box that says "this item is used in assemblies or is a reimbursable charge". It sounds like you pay someone else to ship your products, and then funnel that cost onto the customer invoice to be reimbursed, so that is considered a "reimbursable charge".
Once you click that box, you will see 2 options now, on the left, it will have you assigning a COGS account to PURCHASE TRANSACTIONS, and then you assign an acct for SALES TRANSACTIONS, this is where you put in your Income Acct.
Hope that helps! I tried to add screenshots to this but it wouldn't let me. Best of luck!
Expenses relate to revenue, Liabilities relate to assets, and show up on your balance sheet. Liabilities do not show up on income stmt (profit and loss) Examples of liabilities, are your credit cards/loans, sales tax payable, payroll tax payable, garnishment payables, note payables..... If you were to set up an invoice item to go to a liability account, it would pull the income and/or the COGS expense off your income stmt completely.
Though it might seem logical that since you collect sales tax from your customer and then you pay that same amount to the state you live in, this is not the same at all. By law, you cannot markup your sales tax to make a profit, but you have every legal right to charge a shipping/handling fee based on the percentage of the total sale, or you can do direct shipping cost, for example, you paid $4.95 so you charge the customer $4.95. its a wash. If you paid $4.95, and then you decided to charge the customer $6.00, you made a profit of $1.05. My point is liabilities are not the same as COGS whatsoever from an accounting tax standpoint.
What account do you all use for shipping income?
In the past, I set up Sales of Product Income > Shipping Income.
But I noticed there's a standard account for "Service/Fee Income."
Ultimately, they're both income accounts, but is Service/Fee Income more appropriate for shipping income?
Shipping is an interesting character in the bookkeeping world. Yes you can use the income account on your invoices to show where you charged for the shipping. Then you use the expense accout to show where you paid Fedex, UPS, US Postal, etc. Both these accounts show on your profit and loss statement reflecting any profit made from shipping. (Such as I billed 20.00 on the invoice and paid Fedex 10.00 - I made 10.00 profit) That profit is taxable and is included in the bottom line of the Profit and Loss. ALL CORRECT AND GOOD.
HOWEVER, what it I want to be able to see an actual amount each month of what my shipping sales were? The shipping expense (the amt I paid out) doesn't reflect under the shipping income leading me to think I had more income than I actually did. Rember, it shows correctly in the bottom line on the Profit and Loss, BUT...what if I pay someone a percentage of sales. (The true amount of the sale is shipping income less shipping expense) I can't make shipping expense a sub account of shipping income. Sub accounts have to be the same type account as the "Parent" account. I only want to pay the commission percentage on the profit (or loss) from the shipping. ANSWER: 1. Record shipping on the icustomer invoice with it linked to an income account. 2. When you pay the bill, code it to the same account, (This will reduce your shipping sales income by the shipping expense all in one account and show under your sales. The outcome on the bottom line of the profit and loss statement is the same and everything is still good for tax purposes.
I would also like to know how to handle shipping fees collected - and how to segregate in the Sales Tax Liability report. My shipping fees are included in my total sales and they are not taxable, so I have to notate what is the total shipping fees collected.
1) create a new item - non-inventory or service item will work - have it coded to show up in your income account. If you think its truly non-taxable to your customers, then set that "shipping/handling" item up as non-taxable. This will separate it out on your sales tax liability report. Now your shipping income will not be included as taxable sales on your liability report.
When you pay shipping expenses, simply code those to expenses or COGS depending on nature of your business. If you need to see the difference between what you made in shipping fee income vs. shipping fees expense. Run a "quick report" under the items list, chose the "shipping/handling" you created. run your date range. You could create a special income account and a special item just for shipping income, but I think that is unneccsary to see on a Profit and Loss. If you consistently use the invoice item, then you can run a report by any invoice item. Make sure to account for cash or accrual when running those reports as well.
I personally would not link sales income and expenses to the same item. That means you are unreporting total actual sales. From a tax return standpoint, a CPA wants sales to be TOTAL SALES. Your deductions, expenses, COGS, are put on a Schedule C separately. Even tho your bottom line might get to same number, its not the best way to do it. Also makes it harder to analyze your profit margins etc.
if I can see total sales, and if i'm trying to figure out why I am not making money, I want to see my expenses relating to those same sales (COGS), this way I can go thru the COGS accounts and see if there is a way to lower any of those costs. i do not want them lumped all together. that is not a true represenation of your COGS if you link costs to an income account. Just my two cents.,
Let me guide you on how to handle shipping fees, janalea.
Shipping Fee is the cost incurred by a seller when delivering a parcel to a buyer. As sellers will prepare and ship their own parcels, buying from different sellers means you will have to pay different shipping fees charged by each seller. You'll have to add the inventory items first and add shipping fees as service items with a negative amount. To do this, you can follow the steps below:
Once done, you can add the shipping fee to your bill. Here's how:
After entering a transaction, you can create a report that will show your total sales. Additionally, learn how to customize reports so you'll get the specific information you need. I've added this article for your guide: Customize Reports In QuickBooks Desktop.
Reply on this thread if you have any other concerns about shipping fees. As always I'll be one post away if you need help.
This is my Shipping item - it looks different than what you have shown. I create a Sales Receipt with shipping to match what is collected through Shopify. Shipping fees are recorded as income and then when I pay the shipper (ie-UPS or USPS) I charge to an expense account. I am not sure I follow your method.