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View Full Version : When to record an expense


ack33
Jul 31, 2013, 08:57 PM
I have a website which allows users to pay in advance for credits ($1 = 1 credit). They can then use these credits to purchase digital items on the website at a later date, almost like a gift card.

My payment processor, who handles the transactions related to the purchase of credits, deducts a 15% fee from every credit purchased. Then they send me a check at a later date minus the 15% fee.

Currently I record this as follows:

-----When credits are purchased:
Accounts Receivable - Payment Processor $17 (dr.)
Payment Processor Commission Expense $3 (dr.)
Unearned Revenue $20 (cr.)

-----When credits are redeemed
Unearned Revenue $20 (dr.)
Sales $20 (cr.)

-----When I receive a check from the payment processor
Cash $17 (dr.)
Accounts Receivable - Payment Processor $17 (cr.)


So my question is regarding Payment Processor Commission Expense. Should this be expensed where I have it or when the actual sale happens? The actual sale (redemption of credits) could occur months after the credits have been purchased and months after I've already received a check from the payment processor.

pready
Aug 1, 2013, 09:13 AM
You can record the commission expense as a Prepaid Commission Expense (a current asset), then when the commission is earned the entry will be: Debit Commission Expense and Credit Prepaid Commission Expense for the amount of commission earned.