How to Account for Credit Card Processing Fees in QuickBooks
Credit card processing fees are a necessary cost for businesses that accept credit card payments. When recording these fees in your accounting software, such as QuickBooks, it’s important to accurately account for them to maintain accurate financial records. Here’s a step-by-step guide on how to account for credit card processing fees in QuickBooks:
Step 1: Create an expense account
To properly track credit card processing fees, you need to create an expense account specifically for these fees. In QuickBooks, go to “Lists” and select “Chart of Accounts.” Click on “New” and choose “Expense” as the account type. Name the account something like “Credit Card Processing Fees.”
Step 2: Record the credit card payment
When a customer pays using a credit card, record the payment as you normally would in QuickBooks. Enter the customer’s payment information, including the amount and payment method.
Step 3: Record the credit card processing fee
Once the payment is recorded, it’s time to record the credit card processing fee. Go to the “Banking” menu and select “Make Deposits.” Choose the customer payment you just recorded and enter the total amount deposited. In the “From Account” column, select the credit card processing fee account you created in Step 1. Enter the fee amount as a negative number to deduct it from the total deposit.
Step 4: Reconcile the bank account
When reconciling your bank account in QuickBooks, make sure to include the credit card processing fee as an expense. This will ensure that your bank statement matches your QuickBooks records.
Frequently Asked Questions (FAQs):
1. Can I deduct credit card processing fees as a business expense?
Yes, credit card processing fees are deductible as a business expense. By properly recording these fees in QuickBooks, you can accurately track and deduct them when filing your taxes.
2. What if I use multiple payment processors? How do I account for fees from different providers?
You can create separate expense accounts for each payment processor you use. This allows you to track and categorize fees from different providers easily.
3. Should I record the fees as a separate line item on customer invoices?
It’s not necessary to include the credit card processing fee as a separate line item on customer invoices. Simply record the full payment amount and deduct the fee when reconciling the bank account.
4. Can I categorize credit card processing fees as a COGS (Cost of Goods Sold) expense?
No, credit card processing fees are typically categorized as an operating expense rather than a COGS expense.
5. How often should I reconcile my bank account in QuickBooks?
It’s recommended to reconcile your bank account monthly to ensure accurate financial records.
6. Are there any alternative ways to account for credit card processing fees?
Yes, you can also record credit card processing fees as a separate line item on customer invoices. However, this method requires additional tracking and may be more time-consuming.
7. Can I automate the recording of credit card processing fees in QuickBooks?
Yes, you can set up rules in QuickBooks to automatically categorize credit card processing fees. This can save time and ensure consistency in recording these expenses.