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
