I'm curious how to account for fees paid to Amazon for book sales. Two
payments are made. On is $40 per month be a "Power Seller." This saves you
a $1 per sale fee, and allows you to electronically upload inventory lists.
It's really a necessity, in my mind, to have this in order to conduct
business there. When books sell, there is also a commission of roughly 15%
of the sale price that Amazon retains.
Would these two charges be considered costs of goods sold or simple
It's possible - even likely - that I don't grasp the cost of goods sold
concept quite right yet. I think of shipping expenses as costs of goods
sold, as they are a necessary part of the sale of each item. By that line of
thinking, almost all of my expenses are COGS though, and I know that isn't
right. Where does one draw the line?
Thanks and Regards,
These are operating expenses. They help you sell your inventory, but they
are not considered part of your inventory. They can be considered
membership dues. You should also record the commission as an expense.
Shipping expenses are part of inventory when you buy it. When you sell the
inventory, it is an operating expense, assuming you pick up the cost of
shipping your inventory to buyers.
COGS = Beginning Inventory + Cost of Books You Buy - Ending Inventory
COGS is not used to directly debit or credit business expenses. COGS is
totally dependent on the removal (or return) of inventory due to sales. It
is not changed unless inventory changes. Inventory includes the cost of
your books and any freight you pay for them. As such, when you sell a book,
you would make a debit entry to record the a/r or cash and a credit entry
for the sales revenue. At the same time, you would decrease the inventory
account by the book's cost and increase the COGS by the same amount.
"The trouble with the rat-race is that even if you win you're still a rat."
Thank you so much for the good answers. Cost of goods sold makes much
more sense to me now. I mentioned that I had considered shipping part of
that. As you mentioned, only the shipping (freight) paid to get the
resellable goods in my hands is part of the COGS, not the shipping paid to
get the product to my customer who purchased it. Just pointing that out to
me made the light go on a bit brighter. It seems obvious, but I was mixing
the two together in my head. Maybe my brain is full?
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