Credit Card Sales Journal Entry
In business, the company may need to accept the credit card when it makes sales in order to increase sales revenue as it is a convenient tool of payment that the company can provide to the customer with usually a relative low fee. In this case, the company needs to make the credit card sales journal entry after the sale is successfully made through the credit card processing machine (e.g. POS) without being declined for any reason.
Making the sales through the credit card means is similar to those sales through cash transaction as the bank will deposit the amount of sales (less the relative credit card fee charged) to the company’s account directly after the sale. This means that the company doesn’t need to establish customer’s credit, create receivable account for customer, or collect the cash from customer later.
Likewise, once the sale is done, the transaction at the company side is done too. The customer that uses the credit card for the purchase will pay the bank later (e.g. at the end of the month) for the purchase. This is why the company usually needs to pay the credit card fee to bank as the bank is the one who will perform the payment settlement with the customer.
This is the same for the debit card as the company usually also needs to pay the fee charged from the bank for the sales that are made through the debit card. Though, in this case, the bank will directly deduct the amount from the customer’s account immediately and deposit to the company’s account without waiting to receive payment later from the debit card holder.
Credit card sales journal entry
The company can make the credit card sales journal entry by debiting the cash account and the credit card fee account for the amount that the bank charges for the transaction and crediting the sales revenue account.
|Credit card fee||000|
The credit card fee account is an expense account on the income statement in which its normal balance is on the debit side. This credit card fee is similar to the discount that the company is willing to provide for the convenient sake for both the company and its customers.
Likewise, in this journal entry, the cash that the company receives is the net amount after the bank deduct the credit card fee from the total sale amount that the company makes through the credit card.
Credit card sales example
For example, on July 1, the company ABC makes $5,000 in sales through credit card sales. The bank that issues the credit card charges a 3% fee for processing the transactions.
What is the credit card sales journal entry in the above transaction?
With the total sales of $5,000 in the example here, we can determine the credit card fee to be $150 ($5,000 x 3%) as of July 1.
In this case, the company ABC can make the credit card sales journal entry on July 1, for the $5,000 sales with the 3% credit card fee as below:
|Credit card fee||150|
In this journal entry, the total assets on the balance sheet increase by $4,850 while the net income before interest and tax on the income statement increase by the same amount of $4,850 ($5,000 of sales revenue – $150 of credit card fee) as of July 1.
Journal entry for sales through debit card
The journal entry sale through debit card is the same as the sale through credit card. After all, in the accounting process, there is no difference between the sales through the credit card and debit card on the company side that makes the sales. The difference between the credit card and debit card is on the customers side.
On the customers side, holding the credit card means that they can buy stuff today and pay later (e.g. at the end of the month). However, their creditor is not the company selling the stuff but the bank that issues the credit for them. Of course, the amount that they can spend first and pay later is also limited by the bank based on their credit score.
On the other hand, holding the debit card means that when the customers make any payment, the amount will directly be deducted from their bank’s account by the bank to deposit to the company’s account which is the seller. In either way, the company will just recognize the sale and pay the fee to the bank after successful sale transaction.
Likewise, the company can make the Journal entry for sale through debit card the same as the credit card sale by debiting the cash account and the credit card fee account and crediting sales revenue account.
|Credit card fee||000|
In this journal entry, the credit card fee account can be replaced with the debit card fee account if the company has such account in the chart of accounts. However, in practice, it is not efficient to have credit card fee and debit card fee separately as selling through the credit card is the same as selling through the debit card at the company side. Of course, as it is a name of an account, the company can also just name this account as bank fee or commission fee, etc.
It is useful to note that we don’t usually record the accounts receivable from credit card sale transaction because the credit card is usually processed immediately to check whether it has sufficient credit limit to cover the customer’s payment or not. If the crediting remaining is not sufficient or the credit card is blocked for some reasons, the card will usually be denied by the processing machine resulting in no sale through credit card to begin with. And if the sale is made through, the bank will directly deposit money to the company’s account within a few days if not within a day after deducting necessary credit card fee.