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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2057
Experience:  Certified Public Accountant
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I will be opening up a gift card website by the end of this

Customer Question

I will be opening up a gift card website by the end of this month. I will technically be the 3rd party servicer for a grocery store in Mexico. My website will sell gift cards and charge a $10 processing fee for every transaction (maintaince of the website). I don't know how to go about separating the $10 (earned income) from the gift card $ amount when doing taxes.
Submitted: 9 months ago.
Category: Tax
Expert:  Mark Taylor replied 9 months ago.

Hi, my name is Mark. I will be happy to help you with your questions. So you are selling gift cards for the grocery store in Mexico. If a customer buys a $50 gift card do they pay $50 or $60?

Customer: replied 9 months ago.
Correct. They would end up paying $60. The $10 processing fee is added at checkout.
Expert:  Mark Taylor replied 9 months ago.

You would create the following journal entry.

Cash ..... $60

Due to Grocery Store .......... $50

Processing Fee Income......... $10

Expert:  Mark Taylor replied 9 months ago.

A liability would be created for the amount of gift cards that you sell.

Customer: replied 9 months ago.
Can you go into detail on the liability part?
Expert:  Mark Taylor replied 9 months ago.

The liability is the amount of money you are holding in trust for the grocery store. So assuming during the month you sold $1,000 of gift cards. This is the amount that you would owe to the grocery store (assuming that there is no fees that the grocery store is required to pay).

Expert:  Mark Taylor replied 9 months ago.

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