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Provision Business Services LLC

A Professional Bookkeeping Firm

Located in Albuquerque, Serving all of New Mexico

505-269-3783

If you use the credit card processing site Square, you know that the amount deposited in your bank account doesn’t match the total amount you charged your client’s card.  What is the correct way to post this in your books?

If you look up your deposit on Square’s website, you can see a breakdown of your deposit.  It will show the total amount you collected.  It also shows deductions from that amount.  It deducts a credit card processing fee from each deposit.  If you have a loan from Square, it will also deduct a payment to the loan.

When you post the deposit, post the total amount collected to your sales income account.  (I make one adjustment to sales tax at month end instead of booking it for each deposit.)  QuickBooks allows you to post several lines on your bank deposit form.  On the next line, choose the account you use for credit card processing fees and report the amount as a negative.  This will subtract it from the total collected, and also post it as an expense to your credit card fee account.

If Square is deducting a loan payment, too, on the next line of the deposit, add the account for your loan and report the amount deducted as a negative number.  This subtracts this amount from your total deposit and also records it as a payment to your loan.

After deducting these items, the net amount of the deposit should match what you see on your bank statement.

The reason for doing this is that you are posting the total amount of the sale as income rather than the net amount that’s deposited to your account.  The total amount collected is the amount that you should pay gross receipts (or sales tax) on.  It is incorrect to calculate gross receipts tax on the net amount deposited to your account.

Other reasons for doing posting Square deposits this way is that your books will correctly show the amount you are paying for credit card processing fees and it will also correctly show payments made to your loan from Square.  If you just post the net amount, you aren’t picking up any credit card fee expenses, and your aren’t picking up any payments to your square loan.

Square is a unique credit card processing platform in that they make these adjustments to each deposit.  Most credit card processors will deposit the full amount you collect, then they will separately subtract their fees as another line on your bank statement.