Investors & landlords

From the way you've described the transaction and from what I can glean from the Shopify site, what you have here is a loan, a loan you're paying back by allowing Shopify to take a percentage of your remittances from your sales.

The initial $1,000 you'd enter on your business' accounting records as a loan:

Debit (Increase) Cash in Bank     $1,000

Credit (Increase) Loan from Shopify     $1,000

This entry will never show up on your income tax return because it's strictly a "balance sheet" entry.


As you make sales you'd recognize the full amount of the sales even though Shopify is going to take 13% of your remittance.  So if your sales for a particular day amounted to $150.00 you'd make the accounting entry in your business' accounting records:

Debit (Increase) Cash in Bank    $150.00

Credit (Increase) Sales Revenue         $150.00

These gross sales figures for the year are what you'll report as "Revenue" on Schedule C.


Of course Shopify is going to take 13% if that $150.00, and they are going to continue taking that 13% until you pay the full $1,000 plus interest to Shopify.  I have no idea how much interest they are going to charge you but for sake of illustration let's say that you've agreed to pay back $1,200.00, i.e., 20% of each payment they take can be considered "interest". ($200, the "interest", divided by $1,000, the "principal".)

So, on the same day that you made $150.00 in sales, Shopify is going to take 13% of that $150.00, or $19.50.  So  you'd make the following accounting entry:

Debit (Decrease) Loan from Shopify   $15.60

Debit (Increase) Interest Expense       $  3.90

Credit (Decrease) Cash in Bank                 $19.50

The "principal repayment" portion of this entry, the $15.60, will not show up in your income tax return as, again, it's strictly a "balance sheet" entry.  However the cumulative entries for the year for "interest expense" is a deductible business interest expense in your income tax return.

Tom Young