Merchant Statements continued

The next part of your Merchant statement contains the transaction detail.  It shows the daily detail of your batch processing.  Included are the day of the month, reference number, the transaction code (deposit, chargeback, adjustment or reversal), type of card used, number of sales and amount of sales.  If you are set up for a daily discount program, previous discount payments would be included also.

The next section is your fee totals.  You will be making a journal entry based on the information included here and in the next section.  Some of these fees might include the monthly terminal rental and per transactions fees incurred.   The statement totals are found in the final summary section.  You will be making an entry for any statement fees and minimum discount fees charged (if you didn’t reach the minimum required for the month).

The IRS allows some merchant fees to be categorized as Cost of Goods Sold (COGS).  So, depending on your accounting, they will either reduce Gross Income or be an expense.   I should make a note here that the gateway fees (what you pay monthly for processing) are not considered COGS but are a dues and subscriptions expense.   I’ll follow with sample journal entries at my next writing.

Merchant Statements

When you receive your first Merchant Statement it might look a little overwhelming.  There are lots of numbers to decipher but let me urge you to take the time to review your statement and process the numbers separately rather than just recording the net cash you received.  Today we’ll review 2 sections of the merchant statement.

The heading of the statement will contain some general information: your merchant number (use when calling with questions), bank routing number (a unique number that identifies your bank), deposit account number (identifies your account at the bank) and processing month. 

The next section contains a summary of your sales by card type, any credits you might have processed, the net sale amount (sales less credits), the average transaction amount, the discount percentage rate and discount amount due to the bank.   Check the sales total against your record of credit card sales that you’ve been keeping and make sure they are the same.  Different transaction types and cards are processed at different discount rates – check these for accuracy.  Now, let’s assume the month’s sale amount was $1,200 at a 2.5% discount rate.  The entry you make (if you haven’t already recorded the sales) will look like this:

            Cash                                                 $1,170.00

            Credit Card Discount Expense               $30.00

                        Sales                                                      $1,200.00

(As a review, journal entries are written with the debits on the left and the credits on the right.  In this example, cash and credit card discount expense are debits and sales is a credit, all increases to general ledger accounts.)

If you have already recorded your sales because you make entries as they occur your original entry would have been:

            Accounts receivable                         $1,200.00

                        Sales                                                    $1,200.00

After you receive your statement you will make the following entry:

            Cash                                              $1,170.00

            Credit Card Discount Expense             30.00

                        Accounts receivable                             $1,200.00

This entry will reduce the balance on your accounts receivable account, increase the balance of your cash account and increase the balance of your credit card discount expense account.

Credit Card Processing

Are you thinking about accepting credit card payments?  It’s in your best interest to know what types of fees are charged by various merchants so you can estimate your costs before you sign on.  Some of the terms might be new to you.

Startup Cost includes the cost to set up your account and the Payment Gateway.  A Payment Gateway service verifies your customer's credit card information, judges the authenticity of the transaction, then either declines or processes the credit card payment.  Gateway fees are commonly charged by month and range from $5 to $15.

Most every credit card processing company charges a statement fee. The current industry standard is $10.00 per month.

In addition to start up and monthly fees you will be charged fees based on your transactions.  A transaction fee is a per charge fee that is the same no matter how small or large the transaction is.  The fee may range from $0.20 to $0.30.  In addition you will be charged a Discount Rate.  The amount is a percentage of your sale.  Both of these fees might vary depending on whether the charge is retail or over the Internet.  The retail discount rate tends to be lower than the Internet discount rate by about .5%.  Expect to pay anywhere from 1.6% to 2.3%.   Another per transaction fee is the Address Verification Fee. Every time an address is verified you will be charged.  The range is $0.05 to $0.10.

Some merchants require a monthly minimum and if you don’t meet the minimum you will have to pay the additional amount.

There are many different models of credit card swipers and some merchant account companies offer more than one for their retail customers.  When you display and sell at Art Fairs you’ll need a way to process the credit card at your booth.

Other things to consider when choosing your merchant and setting up your account is the amount of time it will take for the money to clear the account.   This could be 1 day to 3 days unless you have Real Time Processing which means that right after the customer enters required data, the payment gateway will research the validity of the transaction and process the credit card.

Finally, customer service adds value to the account.  If ordering supplies is easy and the representatives are friendly and helpful you will be happy to do business with them.

Tax Day - How to Make it Easier

Tax day was last Thursday and I hope you all fared well!  Now it’s time to take a look at your tax return process and see how you might be able to improve things for next year.  We’re a quarter into the year but it’s not too late to make changes. 

Question #1:  Did you have all the information needed and were all your necessary papers easy to gather to complete your tax return?

Question #2:   How were all of your income and expenses categorized?  Can you simplify or restructure your categories in any way to make finding totals easier?  For example, maybe you had meal and entertainment expenses intermingled with other expenses that had to be totaled separately for your return.

Question #3:  Did you miss any deductions because you weren’t tracking expenses?  What about mileage and a percentage of maintenance on your car for business travel?  Maybe there are other deductions or tax credits for 2010 that you should be planning for now.

Question #4:  If you are making estimated tax payments were they for the right amount? 

Question #5:  Is it time to hire an accountant?  I don’t ask this question to be smug.  Sometimes the effort to work things out on our own is more costly than hiring someone knowledgeable to do it.  And even if you hire an accountant it’s still in your best interest to keep your records current and accurate.  Ask your accountant what’s needed to make the job easier and follow through.   Maybe it’s time to purchase accounting software.  

Finally, I hope your art business is flourishing!  I haven't experienced a more needful time for art in our world than now.