Hi,
We run a small online business. We use a third party company to handle our deliveries. We have a prepaid account with the courier company. We pay, for example, 2000 AED for 105 deliveries. But we have to pay them upfront the entire amount.
We also charge a standard fixed delivery fee from our customer too. Now my question is, how to account this kind of transaction where I charge the customer also, but courier expenses also get debited accordingly.
Create an expense account for the payment to the courier.
Create an income account for the delivery fees charged to customers.
But the payment is made in advance for 105 deliveries, these deliveries will be utilisized over a period of 2-3 months.
If i account the entire AED 2000 in one month, the monthly expense will show wrong figures.
Is it correct to make a provision account to payment made to the courier company?
If you are using accrual based accounting, it is appropriate to post the delivery charges to an asset account and then use a journal entry to transfer the amount used in a month to an expense account. That keeps to the principal of recording expenses during the accounting period in which the income they support is recorded.
If using cash basis accounting, just record the expense when it is paid.
Thanks for the help.