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Capitalizing credit card processing fees to deferred COGS

Quincy Johnson's Profile

I was brought in to takeover the accounting for a startup with a history of about 4 years. The company sells monthly (recognized immediately), annual (recognized over 12 months), and lifetime (we recognize over 36 months) subscriptions to it's software. It has been capitalizing credit card processing fees to Deferred COGS and amortizing over the same periods as the related revenue. So for example if we sell a lifetime subscription for $1,200 and the payment processing fee was $120, we recognize $33.33 of revenue per month and $3.33 of the processing fee in COGS each month. Is this treatment common? I've been trying to find the guidance that allows this or examples of other companies with the same treatment but haven't been able to find any. My view is that they should be expensed immediately and that's what my research has shown. Can anyone help clarify for me? Is deferring the fees and expensing over the same period that the revenue is recognized allowed by GAAP and is it common? Thanks for any help people can provide.


Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Sans any GAAP pronouncements (I have not looked), wouldn't the matching principle be your guide?

Also, should you not separate these transactions into their components when applying said principle (i.e., sale & cash)?

Quincy Johnson
Title: Controller
Company: QJ Inc
(Controller, QJ Inc) |

I appreciate the response but that's not really helpful. Not sure what your second sentence is getting at - we do accrual accounting, cash is irrelevant.

I believe the relevant guidance is ASC 340-40 regarding Deferred Cost of Revenues which says: "Entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if entity expects to recover those costs. It also says: "the incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contracted had not been obtained".

However, all the standard gives as examples are sales commissions and the credit card processing fees don't seem to me to fit that definition so I'm wondering how other companies treat their credit card processing fees.

Anyone else have some insight?


Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

If the sale and payment are part of the same transaction/occur together, then I would regard the cc fee as a cost of sale. I would separate it in COGS from the pure cost of the product or service delivered, and recognize it at the same rate as the revenue-ie using a Deferred COGS to track/release the costs over the contract period.

I think it is common sense to do that.It's critical for management tracking of margins.

I would also track gross billings and card charges (ie ignore deferral) to monitor the cc expense % of sales.

(Director of Finance) |

Did you ever resolve this question? I am researching the same topic.


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