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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 376
Experience:  Former IRS Revenue Agent
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I am looking to get information on shipping costs to

Customer Question

Hi - I am looking to get information on shipping costs to customers. We will be selling goods online and will be billing the customer for shipping. Should we include the shipping billings as revenue and the shipping cost in cost of goods sold and gross margin? Or should we just net the difference between what we bill and what it costs in our COGS and gross margin?
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Customer: Some of our items are low price. However they are heavy and shipping will be expensive. If we are trying to target gross margins of 50%, it doesn't really make sense to inflate the price of the good just to offset the dilutive impact the shipping costs that we are passing through to the customer.
Submitted: 3 months ago.
Category: Finance
Expert:  Dr. Fiona Chen replied 3 months ago.

Hello! My name is***** to JustAnswer. I'm reviewing your question now, and will post back with your reply momentarily.

Expert:  Dr. Fiona Chen replied 3 months ago.

Dear Customer,

Report all income as gross income (gross receipts; gross sales); mailing cost if is high and major, can be above the line deduction, cost of goods sold; if minor, it is below the line expense, mailing and delivery cost.

We cannot offset. Never offset in recognizing income, especially at the gross sales level.

The reasons for us to suggest so are twofold.

First, in terms of accounting and bookkeeping for your business, all numbers need to be entered into your book to be part of the company activity record. That is what the financial accounting is.

Secondly, in terms of tax reporting, if we don't report the upper line, the highest income number, if the on line payment, credit cards, paypal, etc. issue us 1099s, the total amount can be higher than our reported gross receipts. That is an invitation for an audit.

All the business expenses in a way are passing through the customers, but we have to clearly record all of them.

Please feel free to follow up.

Regards,

Fiona

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

Customer: replied 3 months ago.
Thank you for the response! Should shipping cost be a cost of goods sold or a SG&A cost?
Expert:  Dr. Fiona Chen replied 3 months ago.

Dear Customer,

As the last posting stated, "mailing cost if is high and major, can be above the line deduction, cost of goods sold; if minor, it is below the line expense, mailing and delivery cost." Mailing cost here includes shipping and handling.

Regards,

Fiona