Credit Card Receipts: How to Record Gross and Net Income

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Anna P. asks, “I need to know how I can enter receipts from a fundraising [event] when a credit card is used and the amount received will not equal the amount of the…item sold.”

Great question, Anna, and I have an easy solution for you…

Credit card processors usually take both fees and discounts when they process donor or customer purchases, whether they are made through a website or a terminal in a retail or auction setting. Discounts are subtracted from the amount charged to the credit card holder at the time of the sale. Fees are generally withdrawn from your bank account monthly, though some credit card processors combine these two deductions and net them both against each sales transaction.

As a result, an auction item purchased for $100 on a credit card will cost the purchaser $100, but your nonprofit organization will only get somewhere between $95 and $97.50 for it.

To understand how to record this event from the nonprofit accountant’s point of view, think of it as two transactions.

  • First, there is a credit card sale. Record the sale as $100 of auction income.
  • Second, credit card processors deduct fees associated with that sale. Record the discount and fees as expenses of sale.

The clients I work with do not use a Cost of Goods Sold account, since for them, transactions like these only occur in relation to fundraising events, and are not part of their regular operations. They post both the discount and fees to a regular expense account called Credit Card Processing Fees or Merchant Service Fees or a similar description, and they are reported along with other operating expenses.

Nancy Church

About Nancy Church

A CPA in Portland, Oregon with over 20 years experience in auditing, accounting and consulting for nonprofit organizations, Nancy Church is the director and primary driving force behind NFP Accounting Help. A mother of three children, Nancy enjoys music, dancing, working on her old house, hiking, and thinking about how NFPs can create a more effective and efficient accounting process.

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