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Dealing with Credit Card Payments

Receiving Credit Card Payments

Payments received by credit card are basically the same as payments received by cheque:

  • It is a piece of paper that needs to be processed by the bank (or merchant provider);

  • Often several are grouped together into a single deposit on the bank statement; and

  • A fee is charged.

The procedure to deal with these receipts is:

  • Enter the sale against the customer's account. Do not use a generic cash sales or credit card account as this reduces the usefulness of the sales history.

  • Enter the receipt in the normal way, and set the Form of Payment to Credit Card and choose the Card Type.

    The receipt should be entered at the time the credit card charge is made because the customer has paid and should not appear on the trial balance or statements. The banking screen provides a mechanism to determine which credit card charges have not been processed by the bank.

  • Send the credit card slips to the bank/merchant provider.

  • When the deposit appears on your bank statement, go to Accounts Receivable, Banking, and choose the required Banking Type. Select the receipts which comprise the total, set the date and commit.

    Note that the receipts selected must add to the gross value of the deposit excluding the merchant fee deducted.

  • Use Accounts Payable, Express Purchase/Payment to enter a purchase for the merchant fee deducted.

    What therefore appears in the bank reconciliation is a positive line item for the deposit and a negative line item for the payment, with a total of the value that appears on the bank statement.

    Some merchant providers send a monthly statement which shows all the fees as a single total, and it is tempting to enter this as one expense for the month. However, the bank reconcilation is simpler if the fees are entered to correspond to their appearance on the bank statement.

  • At any time the "unpaid" (as in: unpaid by the merchant) credit card payments may be determined by simply viewing the undeposited credit card receipts in Accounts Receivable, Banking.

  • The accounting implications are that, since receipts do not transfer to the General Ledger until they are marked as "deposited", unpaid credit card receipts appear in the balance sheet as part of the debtors value. In other words, the value of the debtors control account will differ from the value from the Accounts Receivable Trial Balance by the value of the unpaid receipts. Therefore they do not "disappear". (This is exactly the same situation as with cheques.)

Recovering the Merchant Fee

Charging a fee to accept credit card payments is increasingly popular. Fundamentally this is just another line item to add to the customer's invoice.

A special stock code could be created for this purpose, but it is simpler to use the same code used for "purchasing" the merchant fee charged by the provider. The corresponding analysis code could have its GL Sales Code set to the same as the GL Purchases Code or to a different account, so merchant fees recovered and merchant fees paid are kept separate in the profit and loss statement.

If the payment method is known at the point of sale, the line item can be calculated and added before committing the invoice. If the payment is being made for an invoice that is already committed, simply issue another tax invoice for the merchant fee.

Because the merchant fee forms part of the supply, the merchant fee line item inherits its GST status from the other items on the invoice. (See "Credit Card Surcharge" at

The merchant fee should be calculated by taking the GST-exclusive value of the items on the invoice, calculating the percentage, and adding GST to that figure. Do not calculate the percentage on the invoice total including GST, or assume the merchant fee is GST-free. (However note that taking a percentage of the GST-free total, and adding GST gives the same total as taking a percentage of the GST-inclusive total. The difference is that the merchant fee must have GST accounted for properly.)

A complication is that if the tax invoice contains a mixture of GST-free items and GST-applicable items, two line items are required to recover the merchant fee, one GST-free and one GST-applicable, as per the following example:

GST-Exclusive ValueGSTGST-Inclusive Value
GST-free items$900.000%$900.00
GST-applicable items$400.0010%$440.00
Merchant fee on GST-free items (2% of $900)$18.000%$18.00
Merchant fee on GST-applicable items (2% of $400)$8.0010%$8.80
INVOICE TOTAL$1,326.00$1,366.80

Therefore the total merchant fee recovered is $26.00 excluding GST, $26.80 including GST.

Important Note: Cadzow are not providers of GST or tax advice. You must consult your professional advisors for information about dealing with these issues in your environment. This article is designed to discuss the process of entering certain types of transactions into a computer system, using real-world examples.

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