Do I record these as COGS or are they considered a Banking Expense?
Accounting For Merchant Fees
I would say they should be recorded as Banking fees. They are are not per se part of the product/service itself, but rather a way to get your money into your bank account. So, based on that rationale, I would say it's a expense incurred to collect your cash.
Many businesses account for Merchant fees as a bank fee expense. The issue is that bank fees are normally associated with transmission fees, bank account administration, etc. Merchant fees (or credit card fees) are a cost associated with your sale (note that is not a deduction of the sale) and therefore is variable. Having merchant fees reflected in your cost of goods would provide a more accurate view of your gross profitability.
This is a valid point. I think the best way, presentation wise to get to where you want to go is to present traditional gross margin and then present variable margin below this; this is where you would show this expense ( and other selling expenses related to the sale such as commissions and other customer rebates). You then come to net variable margin which is what you really "made" on sales.
Merchant fess are being accounted for differently by various entities. Some entities account for them as COGS, some account for them as "Fulfillment Costs", which many times also includes Customer Services expenses as well, still others account for them in G&A. Having been the
One last item to note, when comparing financial results of various retailers, it is very important to read the fine print of where they are
I like to look at both gross profit and contribution margin as well. Are the contribution margin figures you look at net of some overhead (from COGS) and not just variable expenses, which I believe is the traditional calculation for contribution margin? That's something we've been thinking about how to handle at our company.
Also, do you include online
This is an interesting question - even in manufacturing - as more customers have embraced P-cards or V-Cards for payment. I'm not just talking a small company using the owner's CC to maximize Frequent Flyer points. Banks are pushing this to mid and large companies. Rebates are in play as well as and the extended cash flow.
Having spent years in retail, I've always accounted for merchant fees as a bank-related expense. But as fees are growing due to payment methods changing, I too wonder if this shouldn't belong in COGS in a manufacturing environment.
If they are incidental and not regular and routine I would put them in bank charges. However if they are s large part of the cost of selling your product (such as in e commerce or gaming for example), I would show it in Cost of Goods Sold
In the hotel biz we account for them under G & A. Almost everything is paid through CC except direct billed groups. Plus it's always identified in a specific line account. We all know what they are and how they are derived and what their typical run rate is for decision making and budgeting purposes. We know we have only minor control over them from a contractual basis so as long as you track them separately it's really no BFD.
My question is can I show this merchant commission fee in my income statement ,if yes what will be the accounting entries for example : I purchase an X unit in 6000USD,and the MDR is 1% so how will I treat the income besides this transaction & what i have to pay in FED plus the vendor .