USA IT Company - Resold service considered an expense or COS?

[Alethra]

I am trying to set up the chart of accounts for a new IT services company. If our company sells a service provided by another company ... selling spam filtering service, for example, that is provided by a third party on a continuing basis ... is that cost that the third party bills us considered an expense or is it Cost of Service? It is a monthly, continuing service we provide to them and we use a third party to perform the actual service.

Sales - Resold Services Income / Resold Services Expense or Purchases - Resold Services (Cost of Services Sold)

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I think I have the rest okay. We have these income streams and I have them equal out as follows ... is this right?

Billable Expense Income / Billable Expenses for Customers
Example - Hardware bought on behalf of customer for a project that customer will reimburse us for on invoice

Consulting Income / Payroll Expense
Example - IT work done for a third party's customer

Sales - Keys, Licenses, Reg. / Keys, License, Reg. (Cost of Goods Sold account)
Example - Domain name registration for customer, extra user licenses for a software application or service

Sales - Resold Hardware / Purchases - Hardware for Resale (Cost of Goods Sold account)
Sales - Resold Software / Purchases - Software for Resale (Cost of Goods Sold account)
Sales - Support and Maintenance / Payroll Expense

Thank you! I have not been able to find a sample IT company chart of accounts to look at. I wish there was a template for it online that I could find!

 

[kirby]

In general terms, cost of sales expenses are incurred as you make sales revenue. That is typically distinct from operating expense, such as building depreciation, that you incur whether or not you make a sale.
As you noted, the classification of expense vs cost of sales is defined by industry practice. So if you know of a publicly traded company in your industry, look at their financials using SEC’s Edgar system.
Just be sure to show revenues gross and not netted down. Gross figures give more information and are more useful to credit analysts should you ever need to get bank financing.

 

[Alethra]

Okay. Thank you. So basically, because this bill from the third party only occurs because of the sales it is for, then it would be considered a cost of sales and not an expense. Right? I just want to be sure I am clear in my understanding.

 

[kirby]

Yes