How to Handle Merchant Fees With QuickBooks

If you take credit card payments from consumers, you will pay merchant (or transaction) fees depending on the amount or […]

If you take credit card payments from consumers, you will pay merchant (or transaction) fees depending on the amount or volume of transactions. These costs can account for a sizable amount of your company’s cost of goods sold, so it’s critical to manage and document them for tax deduction purposes and gross margin calculations. A simple way to deal with merchant fees and keep consistent records is with QuickBooks. We’ll look at how to utilize these capabilities on QuickBooks Online and Pro in this article.

Taking Merchant Fees into Consideration

Merchant service providers impose merchant fees, also known as seller or transaction fees, to allow you to complete a transaction on their platforms. The fees cover all associated costs with the sales process, including hosting, advertising, shipping, maintenance, and setup. After subtracting the merchant fees from the gross sales, the merchant account transfers your sales revenue into your bank account after you make a transaction.

For instance, if you sell $100 worth of goods on Amazon and the platform takes 20% as a merchant fee, you will only see $80 in your bank account. For correct reporting, you should enter the gross sales and the merchant fee into your bookkeeping software. The fact that merchant fees are tax deductible is another incentive to monitor them.

You have two options when it comes to accounting for credit card processing fees or merchant fees.

Method of Cost of Sales

The revenue statement would show merchant fees at the top if they were treated as a cost of sales. This suggests that the gross margin is obtained by subtracting the charge. Here’s the equation:

Gross profit is equal to income less cost of items sold less merchant fees.

It is a good idea to treat these fees as part of your cost of sales and factor them into your gross margins because you don’t pay them when there are no sales. You may compare service providers using this simple technique that identifies merchant fees as a necessary expense of running a company.

Method of Expenses

When using the expenditure technique, running costs including rent, power, and communications are combined with merchant fees. However, using this strategy, you can overlook these expenses amid all the information in an income statement.

How to Handle QuickBooks Online Merchant Fees

The terms and charges of each payment processor and merchant services provider vary. For instance, each transaction on Payoneer is free if it is made by another Payoneer user, while 2.9% + 30 cents are charged by PayPal.

This is an example of how to manage merchant costs using QuickBooks Online, based on a 2.9% processing fee for PayPal.

1. Generate Sales Receipts

Choose Cash Memo or Sales Receipt under New. Next, draft a receipt for your client.

Sales Receipt

This snapshot shows that we have generated a $50 sales receipt for a PayPal customer. Make sure you choose undeposited Funds as the account to which we will temporarily hold funds under the Deposit to option.

2. Verify the Sales Receipt and the Payment

Comparing the sales receipt and the bank deposit is the next step. You may click on New once more, but this time, under the OTHER column, choose Bank Deposit.

After choosing the account to which the deposit will be made, you may see the relevant payment-in our example, $50 from a PayPal customer indicated below.

PayPal customer

QuickBooks still acknowledges a $50 deposit in its system. Subsequently, create a new line under RECEIVED FROM and enter PayPal Customer under Add Funds to This Deposit.

The total transaction cost, which is 2.9% + 30 cents, or $1.75, will be included in the amount. This money must be recorded as -$1.75 and can be placed in an expense account like Merchant Account Fees.

Merchant Account Fees

The correct amount, which is $48.25 and corresponds to the amount realized, should now appear in the total for this deposit.

How to handle QuickBooks Pro merchant fees

If a business interacts with payment processors, you must record merchant fees in QuickBooks. QuickBooks Pro, the desktop edition, makes this procedure just as easy as QuickBooks Online.

Depending on whether payment processors charge a fixed cost or per transaction, there are two ways you may enter this data into the program.

Entering Transactional Merchant Fees

Merchant fees are based on a portion of the transaction value and are assessed by processors such as Square and PayPal. For example, PayPal charges 2.9% + 30 cents for every transaction. Nonetheless, entering this data into QuickBooks Pro is rather simple. You need to establish a separate account just for merchant fees before proceeding.

Begin by selecting the Receive Payments option from the Customers or Home screens, and then proceed as follows:

  1. Choose the Customer: Select the customer for whom you are inputting the payment using the dropdown menu. QuickBooks automatically retrieves and fills in the data for any unpaid bills that belong to the client.
  2. Enter Payment Amount: Enter the precise amount that the consumer pays beside the Payment Amount section.
  3. Select the Mode of Payment: Indicate how the client will pay you. A few options will appear on the screen. When you click more, more payment options like PayPal and Stripe will appear.
    You can select the processor you use for the company by clicking Add New if this is the first time you are entering the merchant fees into the program.
  4. Correct the mentioned date: Make sure you use the dropdown calendar to select the correct date.
  5. Enter additional information: You can add Additional information, such as the reference number, note, initial amount, and amount due, which can now be included as desired.
  6. Record deposit: Go back to the home screen. There, the Record Deposit icon will have a red indication on it. Click on this.
  7. Select the transaction: A list of payments with filter and sorting options will appear. Verify the payment you recorded, and then click OK to continue.
  8. Select the merchant fees account: You should see a list of accounts under the payment you just recorded. Select the appropriate expense account to record all merchant fees.
  9. Entering the merchant fee: When inputting the merchant fee, use a negative number. This charge will be automatically subtracted by the program from the total amount payable.
  10. Record the entry: Make sure the proper total is displayed in the lower right corner of the screen along with the correct information. Click Save & Close after that. For each merchant charge, repeat these procedures.

Entering the Total of the merchant fees

Monthly merchant fees are levied by a few payment processors, such as Fattmerchant, although they are uncommon. If your processor is one of them, you may use the home screen to browse to Check Register or navigate to Use Register under Banking and choose which account you wish to use to pay the merchant fees from.

  1. Change the Date: Make sure the date is accurate. If needed, make use of the calendar.
  2. Decide on the Supplier: Select the vendor to whom you are paying the merchant charge from the dropdown list located under Payee.
  3. Select the Account: To account for the entry, choose the merchant fees under the Account tab.
  4. Include a Note: If desired, you may include a memo with the payment.
  5. Type the Merchant Charge In: Where it says “Payment,” enter the merchant charge amount. Lastly, to input the merchant charge, click Record.

The flexibility of handling merchant fees with QuickBooks

You may manage merchant fees in QuickBooks in several ways to keep an eye on them for your taxes and reporting. Even though they may not seem like much, merchant fees can add up to a significant amount of your cost of products sold, therefore it’s critical to maintain accurate records of them.

As usual, QuickBooks offers a robust feature set to help you easily accomplish your accounting objectives. This is demonstrated by the straightforward fix for what was formerly a difficult process for bookkeepers and business owners.

Conclusion

With the aid of this tutorial, we hope you will be able to utilize QuickBooks Pro and Online to efficiently handle credit card charges and merchant fees. Still, if you need any assistance, you can contact our professionals at any time.

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+1-800-596-0806 or chat with experts.


Frequently Asked Questions (FAQs)

Ques 1: How are merchant fees recorded in QuickBooks?
Ans: Merchant fees are automatically recorded as expenses in your QuickBooks account. They are deducted from the total amount deposited into your bank account after processing credit card payments.

Ques 2: Are there any tax implications for merchant fees recorded in QuickBooks?
Ans: Merchant fees are generally considered deductible business expenses and can be claimed as such on your tax returns. However, it’s advisable to consult with a tax professional for specific advice regarding your situation.

Ques 3: Can I dispute or reconcile discrepancies in merchant fees recorded in QuickBooks?
Ans: Yes, you can dispute any discrepancies in merchant fees recorded in QuickBooks by contacting your payment processor or financial institution directly. QuickBooks also provides tools to help reconcile such discrepancies within the software.

Ques 4: Does QuickBooks offer any tools or features to help minimize merchant fees?
Ans: QuickBooks provides insights and analytics on your payment processing activities, which can help you identify areas where you can optimize your payment processes to reduce merchant fees. Additionally, QuickBooks offers integration with various payment processors, allowing you to choose the most cost-effective option for your business.

Ques 5: Can I view a breakdown of merchant fees in QuickBooks?
Ans: Yes, QuickBooks provides detailed reports that show a breakdown of merchant fees incurred over a specific period, helping you track expenses more effectively.

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