How do I bookkeep an Ecommerce website?

Question

I have a multi vendor e-commerce website where I sell goods from 3rd party vendors. When an item is sold on my website, the money is stored in my bank account. Monthly, I transfer money earned to the vendors bank account (since it's their money, I just store it). The vendors pay my business $300 per week to sell their items online. What would money in my bank being held for a vendor be classified as? Would I have to count that as my income and pay taxes on it, or just pay income tax on the $300 that the vendor pays me? When I pay the vendor would it be classified as an expense for me even though it is not technically my money? I also pay the vendor's expenses (ie. printing,shipping) per order out of their money earned in my account.

Answer 1

Would I have to count that as my income and pay taxes on it,

No, because it's sales, not income.

or just pay income tax on the $300 that the vendor pays me?

I also pay the vendor's expenses (ie. printing,shipping) per order out of their money earned in my account.

You pay taxes on only what you keep. You've probably got to tell the IRS about the money, and then also tell them about the shipping/handling expenses, what was sent to the vendors, etc.

Thus, your weekly income would be a bit less than $300.

Answer 2

australia

I’ve seen the following construction:

• “Liability” loan account
• “Asset” bank account

When the money goes into your bank account, the double-entry bookkeeping’s corresponding account is the loan account. In essence, you are recording an increase in your cash as well as an increase in your liability.

You’d probably have one loan account for each of your vendors. When you pay them, the money in your bank account drops, as does the liability in the corresponding loan account.

If your references to “I” and “my bank account” relate to the same entity as your reference to “my business”, then I’ll assume you have a corporate entity set up for the business.

Taxes are normally paid on profits (revenue minus expenses, broadly speaking), rather than revenue alone, but if you use loan accounts, you should speak with your accountant about whether your setup would be inadvertently caught by tax provisions designed to foil would-be tax cheats.

The fees your vendors pay you would likely be revenue to you, and the shipping and printing costs you incur are likely to be expenses. Whether the customer’s payment constitute revenue (your payment to vendors being the corresponding expenses) or non-taxable loans and loan repayments is something you’ll need to discuss with your accountants and lawyers. It likely depends on the specifics of the situation, including things like how often you return the payments, what you do if you get paid in one income year and reimburse your vendors in another, etc.

Disclaimer: I am neither an accountant nor a lawyer, and the above is not to be construed as financial or legal advice. Please consult appropriate professionals before acting on anything contained in this answer.