Recording Deposits when a Client Payment is Reduced by Bank Fees

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About this lesson

In this lesson, we discuss how to record client payments that were reduced by fees, such as a wire fee or a credit card processing fee before the funds were deposited into the bank account.

Quick reference

Recording deposits when a client payment is reduced by bank fees

When your business accepts credit card payments from a customer, you're charged a processing fee that needs to be recorded in your accounting system.

When to use

The amount of the fee you're charged by the credit card processing company will vary from provider to provider. In addition, not all fees are paid the same way, some fees are deducted once a month and others happen at the time of the deposit. This lesson is going to show you how to record deposits that been reduced by the merchant processing fee.

Instructions

Invoices and Sales Receipts:

  1. Record the sale as you normally would
  2. Indicate the funds are going to be deposited into undeposited funds
  3. Navigate to undeposited funds and check the box that corresponds to the customer whose deposits you'd like to record
  4. In the lower half of the bank deposit form titled "Add funds to this deposit" fill in line 1
    1. Account = the account on the chart of accounts you use to record your credit card fees
    2. Amount = a negative value totaling the amount of the fees paid to the merchant processing company
  5. Scroll up and review the bold number in the upper right hand corner, this bold number should represent the total amount of money that is going into your bank (customer payment credit card processing fees)
  6. Click the green save and close in the lower right hand corner

Deposits directly to an income account:

  1. Navigate to bank deposit, enter the income as you normally would
  2. After all income is entered, use the next open line to record the bank charges or fee
    1. Account = the account on the chart of accounts you use to record your credit card fees
    2. Amount = a negative value totaling the amount of the fees paid to the merchant processing company
    3. Scroll up and review the bold number in the upper right hand corner, this bold number should represent the total amount of money that is going into your bank (customer payment credit card processing fees)
  3. Click the green save and close in the lower right hand corner

Hints & tips

  • Your credit card processor may not deduct their fee each time a deposit is made, instead they'll deduct a lump sum on a monthly basis.
  • If you integrate your credit card processor with QuickBooks, you may find that the software automatically adds the processing fee to QuickBooks and you don't need to do it.
  • These instructions will apply for other deductions that come off the the top of a deposit such as incoming wire fees.
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  • 00:04 In this video,
  • 00:05 I want to show you how to record deposits where there's fee taken off the top.
  • 00:10 So a really good example of this is something like PayPal or Square.
  • 00:15 You take the credit card payment from the client but then before the money is
  • 00:18 deposited into your account, there's a fee taken off the top.
  • 00:22 I'm going to show you how to do this using a handful of different methods.
  • 00:26 You won't need to know how to do all these different ways, but
  • 00:29 I want to make sure that I cover the way that makes the most sense for you.
  • 00:33 So the first thing I'm going to show you is how to take care of this
  • 00:36 if there's an invoice.
  • 00:38 In the upper left hand corner, we're going to click New, then Invoices and
  • 00:41 we're going to make an invoice.
  • 00:44 We're going to say Cheesy Chester.
  • 00:47 going to save about 2 hours of training 499, Save and close.
  • 00:52 So we sent them an invoice.
  • 00:54 They paid for the invoice and we need to log that they paid it.
  • 00:58 So we're going to Receive the Payment, I'm going to I say Cheesy Chester,
  • 01:02 they paid by Credit Cards and it went into undeposited funds.
  • 01:07 The amount they paid is the full 499.
  • 01:09 Now we didn't get the full 499 because that's just not how it works.
  • 01:14 But they paid the full amount and we want to give them credit for
  • 01:17 paying the full amount.
  • 01:19 So what I'm going to do is click Save and close.
  • 01:23 So we talked about Undeposited Funds before is a place that you go to log
  • 01:27 if you're combining multiple payments into one deposit.
  • 01:31 Well, in this case, I'm going to use that same Undeposited Funds screen, but
  • 01:34 I'm going to use it slightly differently.
  • 01:37 I'm going to use it to log the merchant processing fee.
  • 01:40 So I'm going to click on New in the upper left hand corner.
  • 01:44 Under the column of Other I'm going to go to Bank deposit.
  • 01:48 I'm going to say, okay, the money is going into my Checking Account,
  • 01:52 hopefully on the 8/12.
  • 01:54 This money from this person, right now in the upper right hand corner,
  • 01:59 I can see 499.
  • 02:00 But I know that I don't get the full 499.
  • 02:04 I know there's some money taken off the top for credit card processing.
  • 02:08 A quick side note, some credit card processors will bill you at the end of
  • 02:12 the month and some processors will take the money off the top.
  • 02:17 This example is for when the money comes off the top.
  • 02:19 I'm going to come down to the second half of my make deposit screen or
  • 02:24 my Bank Deposit screen.
  • 02:26 The top half says select the payments to include.
  • 02:29 The bottom half says add funds to this deposit.
  • 02:32 Well, we are not really going to add funds, we are going to take away funds.
  • 02:36 So the from I could certainly write Cheesy Chester or
  • 02:41 I could say, Credit Card Processing Company.
  • 02:48 And I know it says customer, but really this is someone we are giving money too so
  • 02:52 I'm going to change the drop down let's say Vendor, click Save.
  • 02:56 So here the account.
  • 02:58 So the question is, why are you making this entry?
  • 03:00 Well, you're making an entry to record a fee.
  • 03:03 So, what account do you want to use for the fee?
  • 03:06 It's not a trick question.
  • 03:07 I want you to think about your profit and loss report.
  • 03:10 And just think about when I look at this report,
  • 03:13 where do I want to see it logged that I paid this fee?
  • 03:16 Do I want a special line that says merchant fees?
  • 03:19 Do I want to lump it in with bank fees?
  • 03:21 What do I want?
  • 03:23 For the purpose of this example we're going to choose Bank Feeds.
  • 03:27 So I type in the word Bank.
  • 03:28 My default chart of account says Bank Charges and Fees and I'm like,
  • 03:32 that's fine.
  • 03:33 I will use Bank Charges and Fees.
  • 03:35 I don't need to put a Description in because I know what happened.
  • 03:39 They took money off the top.
  • 03:41 I don't need to put in a Payment Method or Reference Number.
  • 03:44 What I do need to do is make the bold number in the upper right hand corner
  • 03:49 smaller.
  • 03:50 I need to make that number match the amount of money that is
  • 03:53 actually going to go into my bank account.
  • 03:56 So usually it's 25 cents or 30 cents plus a 3% fee.
  • 04:01 It's a whole thing.
  • 04:03 You can look up and see how much money is taken out every time you get a deposit.
  • 04:07 So for this example, we're just going to pretend like it's an easy 3%.
  • 04:12 I could do the math in my head, possibly, but I'm not going to.
  • 04:16 I'm going to do something sneaky.
  • 04:19 I'm going to say I need to take 3% off of this 499 for my example.
  • 04:23 I'm going to type in 499 and then I'll click the asterisk on my keyboard and
  • 04:30 then I'll say times 0.03, and I'll click away.
  • 04:35 So now I know 3% is $14.97.
  • 04:38 But I remember that I need this to be a negative number because I'm losing 3% to
  • 04:43 bank fees.
  • 04:43 So I'm just going to put a little minus in front and
  • 04:46 then when click somewhere else I can see this is updated to a minus,
  • 04:50 my bold number in the upper right hand corner is updated.
  • 04:55 So what I'm really seeing on this bank deposit is that I had an invoice,
  • 05:00 the invoice got paid, the client gets full credit of the 499.
  • 05:05 I had to pay a $15 fee,
  • 05:08 and this is the amount of money that goes into my bank account, Save and close.
  • 05:14 So I'm going to walk you through it again a little bit faster this time using
  • 05:17 the Sales receipt as an example.
  • 05:19 It's going to look very similar.
  • 05:21 The only difference is here in the beginning.
  • 05:23 We pick our customer, we pick our payment method,
  • 05:28 deposit Undeposited Funds, we say 2 hours same 499, Save and close.
  • 05:36 A new bank deposit here.
  • 05:39 It's exactly the same as we just did.
  • 05:41 We go here, we say why we lose the money.
  • 05:45 And then what are we taking off, sort out 3,
  • 05:49 all right, so I've got my minus in there, Save and close.
  • 05:54 So the Sales receipt and
  • 05:55 the Invoice exactly the same process when you get to the Bank Deposit screen.
  • 06:00 Only difference was, what do you do in the beginning?
  • 06:02 Do you pick sales receipt, do you pick invoice?
  • 06:04 I want to show you what it looks like if you're not creating a sales receipt or
  • 06:08 an invoice and you're just depositing the money.
  • 06:11 So we're going to go New and we're going to go Bank deposit.
  • 06:15 We're going to pretend that it's our Candy and Sales, right?
  • 06:18 So Candy and Soda Income.
  • 06:21 The payment method is Credit Card.
  • 06:23 So we're going to say we had $500 for the credit card sales.
  • 06:28 So we're going to say we had $500 worth of credit card sales.
  • 06:31 We know we had $500 for the credit card sales, but
  • 06:35 we used a merchant processor like Square or PayPal or something of that nature.
  • 06:39 And they took some money off the top.
  • 06:41 And so we're going to come down here and we're going to say bank charges,
  • 06:47 and we're going to go 500 times 0.03 put the minus in front of it,
  • 06:52 and the reason we're doing this and not just recording $485 with the sales,
  • 06:58 is because we need to record how much money to be earned.
  • 07:02 We earned $500, we had to pay out 15.
  • 07:05 So, we don't like it but that's how it is.
  • 07:08 When you look at your profit and loss, I want you to see
  • 07:11 how much money did you earn and how much money are you paying in fees?
  • 07:16 So it's helpful to know where you're at just so
  • 07:18 you can make better business decisions.
  • 07:20 But also the IRS wants you to log, how much money did you earn?
  • 07:24 Not how much money did you collect?

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