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Accounting For Google Play Revenue

We sell our product on Google Play. The transaction fee is 30%. We receive 70% of the payment monthly (ACH to our bank account).

How should we record Google Play Revenue? Should revenue equal to the net amount received? Or should we record the gross amount as revenue, then record the 30% as cost of sales, or is it operating expense? 

 

Answers

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Record 100% of the revenue. The 30% transaction fee, in my opinion, is an operating expense. To make cash reconcile to the statement, the entry would be a credit of $50 to revenue and a $15 debit to the applicable expense account. The difference of $35 will be what gets debited as cash.

Anonymous
(Accounting Manager) |

Thank you, Chris!

Stephen Turk
Title: Principal
Company: Stephen Turk, CPA
(Principal, Stephen Turk, CPA) |

There is detailed guidance as to whether an entity should report revenue gross or net of certain amounts paid to others in GAAP (ASC 605-45). The guidance provides lists of "Indicators of Gross Revenue Reporting" and "Indicators of Net Revenue Reporting." The determination of net vs. gross presentation (i.e., agent vs. principal) is very dependent on your specific facts and circumstances, including the terms of your agreement with Google. There is no "bright line" test but rather a requirement to weigh the various indicators and apply judgement.

FWIW, Google discloses in its 10-K that "For the sale of certain third-party products and services, we evaluate whether it is appropriate to recognize revenue based on the gross amount billed to the customers or the net amount earned as revenue share. Generally, when we are primarily obligated in a transaction, are subject to inventory risk or have latitude in establishing prices, or have several but not all of these indicators, revenue is recorded on a gross basis. We generally record the net amounts as revenue earned if we are not primarily obligated and do not have inventory risk or latitude in establishing prices. Such amounts earned are typically determined using a fixed percentage, a fixed fee, or a combination of the two." In other words, Google is applying the guidance in ASC 605-45 and their conclusion varies based on the specific facts and circumstances, so you can't simply say, for example, "Google is recording revenue net as agent, therefore we should record it gross as principal."

Anonymous
(Accounting Manager) |

Thank you, Stephen!

Topic Expert
Mark Sphar
Title: Chief Accounting Officer
Company: Veracity Payment Solutions
(Chief Accounting Officer, Veracity Payment Solutions) |

I agree with Stephen. FWIW - Assuming you go through an audit, do the research and then write up your conclusion in a memo and have the auditors bless it. Many times these end up being a management decision as the guidance can be interpreted. Understand the guidance. Make determination. Have auditors bless it. Stay consistent.

Good luck.

Gregory Q. Jenkins
Title: President
Company: Quentasia Industries Incorporated
(President, Quentasia Industries Incorporated) |

This is a great discussion. I too receive revenue from Google Play but it is a very tiny part of our overall revenue. For that reason and the fact that we have no inventory risk, we record the revenue on a net basis. Definitely depends on the circumstance and that circumstance can change over time.

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