How account for finance company fees, box store referral fees, etc.

[michael21]

Since well before I started here, this company has always treated finance company fees, box store fees, etc. as a cost of sales item.  So, if I sell a finance job for $1000, have materials & labor costs of $750, and pay a finance company fee of $50 I would record that as sales of $1,000 and cost of sales as $800 for a 20% margin.  In testing of the new Payment Collections process, it was suggested that Service Titan's suggested workflow is that in the Knowledge Base article, "Finance Fees/BuyDown: Recommended Workflow".  This workflow treats the $50 finance company fee as a reduction in the job's price, so that sales would be $950 and cost of sales would be $750.  These produce the same gross profit but not the same margin.  The accountant in me says that ST's approach is an understatement of both revenue and cost of sales, something GAAP wouldn't like, but I am curious how the rest of the industry does this.  If willing, any responses on how your company does this would be appreciated.

[michael21]

@rstare 

Hi Ryan, good to speak with you again.  That is a good course, buy my real question is related to how people treat the cost of the finance fee.  The course discusses 2 method of handling this.  In the first, the fee is handled strictly through payments.  The cost will be charged to whatever account is associated with the payment type used.  In this method, the finance fee isn't considered part of job cost at all, so the example shown has a job with a 100% margin even though there was a finance fee charged.  I suppose you could build an argument that the finance fee was a selling expense or a G&A expense, but that's not a treatment I would be comfortable with.  The second recommended method in the course uses the method described above.  So, I'm curious how other companies in the trade handle finance company fees in their statements.