Just as an example, I believe QuickBooks comes with a default "Merchant Account Fees" expense account. If you are using numbered accounts, probably in the 600/6000 range.
I can tell you a couple of ways to handle it that are totally in keeping with GAAP (Generally Accepted Account Principles). Now this is US, but should be pretty standard throughout the English-speaking world.
You need to have an Other Current Asset named Credit Card Holding. I have 3, one for my visa/mc processor, one for amex and one for discover, since the last two pay seperately.
And you also need the Expense Account I mentioned above.
Here is the routine -
When entering a sale, or a total of sales for whatever period, you enter your sales as normal.
Then you do a reverse (minus) line entry to your Credit Card Holding account. I don't know which sage product you are using, and I've never worked with it myself, so I can't tell you exact routine for this line entry. You may be able to make up a Payment type item that will automatically make the entry for you. Regardless, your card sales, either for the day or for that invoice, should go into the Holding account.
Any other sales amount that has been paid by cash or check should be recorded ar you usually would. Your Sales Account (and any related Tax Accounts) will receive the correct amounts, your cash and checks will be properly recorded (either as On Hand for Deposit or as being deposited into your Bank Account.)
Make sense so far? It's money you've almost collected, but don't yet have.
Then several days (or weeks, I just don't know how things go in the UK. My card sales hit my bank in two days.) later the money hits your bank. This is where things can go two ways.
Some processors deposit the full amount of the charges in the bank and deduct their fees at the end of the month. Others deduct their fees from each transfer. I'll cover both, then tell you my way, which probably is not 100% GAAP.
If the fees are deducted monthly and the full charge amount is deposited into your bank, simply do a transfer the day the money hits the bank. Take if from the Holding Account and move it to the Bank Account. (Just like what is really happening - imagine that!) Again, I do not know if you have an inter-account transfer capability, or if you will have to do Journal Entries, but as the money hits your bank, you move it from Holding to Bank.
If no fees are deducted along the way, at the end of the month you simply do a Journal Entry to move the processing fee from your Bank Account to the Expense Account you set up.
Also at the end of the month, make it a point to make sure the balance in the Holding Account is correct. Compare the balance to the last few days' credit card sales and find any problems.
Now for the more complicated process, where the fees are deducted with each transfer.
Actually it's pretty much the same, except you are only Transferring a part of the amount from Holding to Bank. The difference for that particular day, or days, should now be posted to the Expense Account. That means a Journal Entry, just like with the monthly fee method. Just more JE's this way.
So, there you have it. The Proper Way to handle credit card transactions within your bookkeeping system.
Then, there is my way - Pretty much the same, but with the processors who deduct the fees as they go, I just let all that build in the Holding Account and move it out once a month with a JE. I doubt a strict reading of my books would make an accounting professor happy, but it works for me and the totals at the end of the month are the same.
BUT - no matter how you do it, take the time when you reconcile your bank account(s) to also reconcile your credit card holding accounts. It can be a real bother trying to straighten them out 6 months later,
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December 2008
