How to Record KYC and AML Verification Costs
Determining whether to classify identity verification fees as Cost of Sales (COGS) or General & Administrative (G&A) expenses.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cost of Sales - User Onboarding (KYC/AML) | Expense (+) | 2,500.00 | - |
| Accrued Liabilities - Verification Vendors | Liability (+) | - | 2,500.00 |
💡 Accountant's Note
FinTechs pay vendors (like Onfido or Persona) to verify IDs and run AML checks. If the business model relies on high-volume account opening to generate transaction fees, these are generally classified as 'Cost of Sales' to accurately reflect the 'Unit Economics' of a new user. If it's a once-a-year compliance check, it might stay in G&A.
Practitioner & Systems Framework
💻 ERP Architecture
Track this as a 'Variable Cost' in the P&L. Comparing 'KYC Cost per Approved User' is a key metric for FinTech CFOs to measure onboarding efficiency.
⚠️ Audit Flags
Incorrect classification. Moving KYC costs to G&A to 'inflate' Gross Margin is a common audit adjustment.
📄 Required Documentation
Vendor monthly usage report (successful vs. failed checks) and the Master Service Agreement (MSA).
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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