Domain Accounting Treating Domain Purchase in Account

Most domain traders confuse on the classification of their domains, should domain purchase be on the balance sheet or in as expense?

Well this is a grey area, and no separate tax rule made for it, so you can treat it like a car dealer. If your main business model is buy-sell domains then it should be on the P&L, if not then it needs to be on the balance sheet(i.e. website that's selling adspace).

Here's how it can be done, I am not saying it’s 100% correct, be it’s generally accepted for UK, I am sure it’s very similar in other countries, but you should check the tax rules there first.

Method 1 (complicated method)

How it should look on the Balance Sheet:

Investment Asset: domains that I had done a site for and giving me ad revenue.

Stock: a stocktake/valuation of my domains at year end date (note does not include the ones already accounted for in investment asset)

How it should look on the Profit and Lost Account:

Sales: proceeds from sale of websites and domains

Cost of sales: Opening stock + Purchases - Closing stock

Gross profit: Net proceeds from sales

Other income: revenue from parking and advertising and other income (i.e. web design)

Expenses: hosting, transfer fees, commissions, renewal fees for fix asset, etc

Method 2 (simple method)

Same as method one, but without the stock, so all purchases will go in as a cost of sale.

The simple method is more suited to a small domain trader, as their stock held is not significant.