How to Account for Credit Card Sales

Careful accounting procedures keeps your accounts well-balanced.

Running a business requires careful accounting be kept of all transactions. Accepting credit cards at your business can increase trade, improving sales. Accounting for credit card sales however, can be a bit more complicated than accounting for cash sales. The method of marking down sales paid for by credit card changes according to the type of credit card used. Bank-issued cards are accounted for differently than are store-issued cards, while third-party credit cards issued by independent credit card companies require yet another accounting method. Fortunately, there are rules covering all credit card sales, and knowing how to account for each will keep your account books well-balanced.

Things You'll Need

• Sales receipts
• Account books
• Pen

Instructions

1. Examine the sales receipts for the day and separate them into piles according to type. Place receipts from bank-issued cards that charge merchant fees into one pile. Place receipts from store-issued cards given to customers of your shop in a second pile. Place receipts from credit card companies that you have to turn in for reimbursement into a third pile.

2. Mark the bank-issued cards in your account books. You can deposit these receipts along with cash and checks into your bank account, so yout should handle them as direct payments. Deduct the fee charged from the bank for the card use and place that amount in the account book as a debit labeled "Service charge". Place the remainder in your account book as a debit labeled "Cash." Place the total amount of the receipts in the book as a credit labeled as "Sales."

3. Account for the receipts for store-issued cards as accounts receivable, as the customer has only paid with credit and still owes you. Debit the total labeled as "Accounts receivable (customer)", and credit it as "Sales".

4. Send in the remainder of the receipts to their respective credit card companies so that you can receive payment. When you send them in, debit these receipts in the book labeled as "Accounts receivable (credit card company)" and credit them labeled as "Sales."

5. Debit the payment from the credit card company in your account books when you receive it. Label the cash received as "Cash" and the fee the company deducted before sending you the payment as "Service charge." Balance this out by placing a credit in your book labeled as "Accounts receivable (credit card company)" for the entire amount combining the cash and fee.

6. Make an adjusting entry in your books if the payment from the credit card company isn't received before the end of the accounting period containing the the original accounts receivable entry. The adjustment accounts for the expense for the sales and covers the fee demanded by the credit card company. Label the fee in the debit column as "Credit card expense" and in the credit column as "Accounts receivable (card issuer)." When payment is received from the credit card company you can then balance the accounts receivable by debiting the cash amount without the fee as "Cash" and crediting the amount as "Accounts Receivable (card issuer)" The adjustment previously made accounted for the fee demanded by the company.

References

• Principles of Accounting: The Costs and Benefits of Selling on Credit
• Cliffs Notes: Credit Card Sales

Resources

• Principles of Accounting