I have been ask to take over the books of a lady that runs an on line clothing business she has been trading for just over 6 months .and a friend of hers has been doing the accounts for free( Alarm Bells )
I have now seen the accounts and yes you got it right mess most if witch i can put right i just need a bit of help with some of it . However i have never done accounts for an on line business so what i am about to ask they my have done right it just dont seem right to me
Right hold on to your hats the client sales goods lets just say £20.00 + p&p £3.00 = £23.00
This £23.00 has now been entered in to the sales account. So to my mind this is incorrect as the £3.00 p&p is not a sale as the customer is paying it to have the goods sent to them
The client now takes £3.00 from the bank to pay for the p&p for this sale however the cost of the post is only £2.50 i am told that a % is added to all p&p as to make a profit on the post. for this sale 50p i now see that the total amount of £3.00 has been put in to the expense account for post no way is this right as the 50p will be other income and must be shown as that
So if i am right on all of thisi need to show the P&p coming in to the bank and going out but like i say i dont think it is an expense .to the client as customer has paid
I will also have to remove the P&p from the sales account but where to
Yes, the easiest thing is to split the P&P income to 'other income', although I don't think there's necessarily a requirement to do it, more for profit measurement.
The P&P incurred by the business is a direct cost.
Nothing wrong in shifting the profit from the sale of goods to the P&P, I think this has been happening on Ebay for quite a while.
I think you may be thinking this is more difficult than it actually is. You seem to understand it OK.
For the stats, the P&P income should probably be included in income. It's not really other income; it is intrinsic to the transactions. The client could increase their selling price by £3 and offer it as 'P&P free'.
However, it is important that the distinction is made for the margin; I've done management accounts before for a similar scenario, but the amount paid for P&P by the customer was the same as that incurred by the business. The net result was a higher sales figure, but the same profit figure, which of course diluted the margin. We had to be able to splt the P&P out so that they could see how they are performing.
I was not including the p&p to other income only the profit IE the Customer is paying £3.00 for the p&pbut it only cost £2.50 for p&pso the client is making 50p it is this i am going to put to other income as of now they have put it all in as an expense the £2.50 is yes but not the 50p
reading this thread it sounds as though £3.00 is taken physically from the bank.
I assume that a legitimate receipt exists for the £2.50 for P&P.
There is no mention that the 50p is returned to the bank therefore the 50p goes to the owners drawing meaning that there is also an associated tax liability being accrued here.
Before anyone jumps on the materialarity of this, I know that 50p is not a lot but this is 50p for every item posted.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I agree with Lumpy (and several others) that £23 has to go as sales, whether in one lump sum or separated out into 2 transactions (ie £20 sale of goods income and £3 P&P income).
The whole £23 must be shown as income, not just £20.50, as the seller received the whole £23. To not include the postage would be like saying she has only received £5 income because she spent the other £15 on purchasing the stock herself!! The P&L will deal with deducting the expenses from the income to arrive at the profit figure.
Think about it from a VAT point of view, a business needs to be VAT registered when it has a turnover of £70, 000 and that figure is total turnover ie. including the P&P.
I agree, the whole lot is sales; however, there is another issue here:
Something to really consider for an online business is why are the sales not automated. i.e. presumably there is a checkout system, Sagepay, paypal, google checkout etc. All of these sync with a variety of accounts packages.
Particularly if you are talking about low value, high volume, possible EC transactions etc. automation is the way forward.
I have a few clients with online businesses. The main two both use paypal as the method of collection and sync it directly with KashFlow. More complex systems can integrate stock and order management as well.
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