Credit card sales accounting will vary depending on whether or not the cash register is linked directly to the credit card company and cash is received immediately, or payment is received from the credit card company at a later date.
As an example, suppose a business has credit card sales of 1,000, and the processing fee payable to the credit card company is 2% (20).
Credit Card Sales Received Immediately
If the cash register is linked directly to the credit card company and the cash is received immediately, the credit card sales are accounted for by the following journal entry:
| Account | Debit | Credit |
|---|---|---|
| Cash | 980 | |
| Credit card expense | 20 | |
| Sales | 1,000 | |
| Total | 1,000 | 1,000 |
The credit card sales journal entry effectively treats the sale as cash sale, but reduces the cash received by the expense for using the card deducted by the credit card company.
The Accounting Equation
The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus equity of the business. This is true at any time and applies to each transaction. For this transaction the accounting equation is shown in the following table.
For this transaction the accounting equation is shown in the following table.
| Assets | = | Liabilities | + | Owners Equity |
|---|---|---|---|---|
| Cash | = | None | + | Retained Earnings |
| 980 | = | 0 | + | 1,000 – 20 |
In this case the asset of cash has increased by 980 and the income statement has been credited with sales of 1,000 and credit card fees of 20. The 980 credit to the income statement increases the net income which increases the retained earnings and therefore the owners equity in the business.
Credit Card Sales Received at a Later Date
If the cash register is not linked directly to the credit card company and the cash is received at a later date, then the credit card transactions would be accounted for by a two stage process using the following journals:
The first journal establishes the amount due from the credit card company as an accounts receivable.
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable | 1,000 | |
| Sales | 1,000 | |
| Total | 1,000 | 1,000 |
When the cash is received from the credit card company, the second credit card sales journal is completed to record the receipt as follows:
| Account | Debit | Credit |
|---|---|---|
| Cash | 980 | |
| Credit card expense | 20 | |
| Accounts receivable | 1,000 | |
| Total | 1,000 | 1,000 |
The cash less the fee is received from the credit card company, the accounts receivable balance is cleared, and the credit card fee for processing is charged to the credit card expense account.
Popular Double Entry Bookkeeping Examples
Another double entry bookkeeping example for you to discover.