Credit card transactions in accounting involve recognizing both the revenue or expense and the corresponding receivable or payable related to the credit card. Below are some examples of journal entries related to credit card transactions.
1. Credit Card Sales
When a business makes a sale and the customer pays with a credit card, the business must recognize the revenue and the receivable from the credit card company.
Example 1: Recording a Credit Card Sale
Scenario: On February 10, 2024, a customer purchases goods worth $1,000 using a credit card.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 02-10-2024 | Accounts Receivable (Credit Card) | 1,000 | |
| 02-10-2024 | To Sales Revenue | 1,000 |
Explanation:
- Accounts Receivable (Credit Card) will debited to reflect the amount owed by the credit card company.
- Sales Revenue will credited to recognize the earned income from the sale.
2. Credit Card Fees
When a business accepts credit card payments, it usually incurs a processing fee charged by the credit card company.
Example 2: Recording Credit Card Fees
Scenario: On February 10, 2024, the credit card company charges a 2% processing fee on the $1,000 sale.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 02-10-2024 | Credit Card Fees Expense | 20 | |
| 02-10-2024 | To Accounts Receivable (Credit Card) | 20 |
Explanation:
- Credit Card Fees Expense will debited to record the cost of the credit card processing fee.
- Accounts Receivable (Credit Card) will credited to reduce the amount receivable by the fee amount.
3. Receiving Payment from the Credit Card Company
When the credit card company transfers the funds to the business’s bank account, the receivable is cleared, and cash is increased.
Example 3: Receiving Payment
Scenario: On February 15, 2024, the credit card company transfers $980 to the business’s bank account after deducting the $20 fee.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 02-15-2024 | Bank | 980 | |
| 02-15-2024 | To Accounts Receivable (Credit Card) | 980 |
Explanation:
- Bank will debited to reflect the funds received from the credit card company.
- Accounts Receivable (Credit Card) will credited to clear the outstanding receivable.
4. Credit Card Expenses
When a business uses a credit card to pay for expenses, it needs to record the expense and the payable to the credit card company.
Example 4: Recording a Credit Card Purchase
Scenario: On March 5, 2024, the business uses a credit card to purchase office supplies worth $500.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 03-05-2024 | Office Supplies Expense | 500 | |
| 03-05-2024 | To Accounts Payable (Credit Card) | 500 |
Explanation:
- Office Supplies Expense will debited to reflect the cost of the supplies.
- Accounts Payable (Credit Card) will credited to show the liability to the credit card company.
5. Paying the Credit Card Bill
When the business pays off its credit card bill, the liability is cleared, and cash is reduced.
Example 5: Paying Off the Credit Card
Scenario: On March 25, 2024, the business pays $500 to the credit card company.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 03-25-2024 | Accounts Payable (Credit Card) | 500 | |
| 03-25-2024 | To Bank | 500 |
Explanation:
- Accounts Payable (Credit Card) will debited to clear the liability.
- Bank will credited to account for the payment made.
6. Interest on Credit Card
If a business carries a balance on its credit card and incurs interest charges, this needs to be recorded.
Example 6: Recording Credit Card Interest
Scenario: On April 1, 2024, the business incurs $25 in interest charges on its credit card.
Journal Entry:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 04-01-2024 | Interest Expense | 25 | |
| 04-01-2024 | To Accounts Payable (Credit Card) | 25 |
Explanation:
- Interest Expense will debited to reflect the cost of borrowing.
- Accounts Payable (Credit Card) will credited to show the additional liability.
These examples illustrate how to record various credit card transactions, from sales and fees to expenses and payments, in the accounting records.