The Gross vs. Net Trap
What is it?
Revenue recognition is the accounting rule for when and how you record a sale. In POD, a common mistake is recording the Net Deposit that hits your bank account (e.g., $95) as your revenue, rather than the Gross Sale amount (e.g., $100).Why is it important?
If you only record the deposit, you are under-reporting your revenue and hiding your transaction fees. This messes up your taxes and makes your profit margins look artificially high because you aren't accounting for the costs that were deducted before the money arrived.How to Do It Correctly:
- Record Gross Sales: If a customer buys a shirt for $50 and pays $10 shipping, your Revenue is $60.
- Record Fees Separately: The $2.00 Shopify/Stripe fee should be recorded as a 'Merchant Fee' expense, not subtracted from revenue.
- Record Refunds: Refunds should be a 'contra-revenue' account (negative revenue), not just an expense.
Real-Life Example
Customer pays $100. Shopify takes $3 fee and deposits $97.
Wrong Way: Record $97 Revenue.
Right Way: Record $100 Revenue and $3 Merchant Fee Expense.
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Curriculum: 7.7 - Accounting for Print-on-Demand (POD) (Difficulty: Advanced | Path: Scale)
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