Reconciling Merchant Accounts

One of the areas where we find clients struggling is in truing up their books to monthly Merchant Account Processor statements.  There are a few items to consider when entering and reconciling merchant account deposits into your books, including delayed bank deposits, merchant fees netted from deposits and other month-end merchant fees.  Here are some suggestions on addressing each issue:


 

Problem Possibility 1: The batch deposits received into your bank account are usually delayed by 1-2 days (sometimes up to 4 days) depending on your processor.  Because of this lag, what you show in deposits for a calendar month on your books will not necessarily match your monthly merchant processor statements. There are a couple of methods that can be used to remedy this:

Method 1 – Using a Merchant Deposits Receivable account.  

Step 1Create Current Asset Category

 If you don’t already have one, create a Current Asset account in your chart of accounts called “Merchant Deposits Receivable” (or any variation that you prefer).

Step 2Create Journal Entry 

Login to your merchant processor to see what the last couple deposits of the month should have been, or obtain this information from your merchant processor’s statement (if available).  Determine which deposits have been recorded in the previous month, and which ones didn’t hit until the beginning of the following month.  Once you have a total of the deposits that didn’t hit until the following month, make a journal entry that debits the Merchant Deposit Receivable account, and credits the same account that all of your other deposits hit (i.e. Revenue, Sales, etc).  Date this journal entry as of the last day of the month.

Step 3Zero Out Journal Entry 

Create another journal entry, this one dated the first day of the next month that reverses out your entry for Step 2.  This will then essentially zero out the effect of those deposits that hit at the beginning of the following month, but which you have now recorded in the prior month.

Method 2 – Re-date transactions to the prior month 

Though simpler than Method 1, this method is a less accurate representation of what actually transpired, and may end up creating confusion when you reconcile your bank account.  You still need to pinpoint all of the merchant deposits that hit at the beginning of the following month (see Method 1, Step 2).  However, instead of creating and using a receivable account, you will simply change the date on each of these transactions to be the last day of the month that you need them in.  Note that these deposits will show as uncleared transactions when you do your monthly bank reconciliation, and will not be cleared until you do the following month’s bank reconciliation.

Problem Possibility 2: The second problem that usually prevents clients from being able to tie out their books to their Merchant Account Processor monthly statements is merchant fees.  Depending on your processor, the merchant fees you pay may appear as a unique bank transaction, or will be netted from your daily deposits.  If you fall in the latter category and are not making a monthly (or daily) entry to account for this, you are actually under-recording your revenue and also under-recording your Merchant Processing Fees expense (usually a Cost of Sales account).  Disclaimer: Merchant account statements come in many different forms, but there seem to be quite a few processors that use the format outlined below.  If the format of your statement is different than described below, then you may need to do a little digging to see where you can find this number.

Step 1Locate Discount Paid

To find the amount of fees deducted from your daily deposits throughout the month, look on your merchant statement and find the “Summary of Card Fees” section or something similarly named.  This section details all of the processing fees that you incurred in a month. Toward the bottom of the section, you’ll find  a line that says something like “Less Discount Paid”.  This is the amount that the processor actually withheld from your batches and for which you need to make a journal entry.

Step 2Journal Entry

To true up the monthly merchant fees, simply make a journal entry that debits the Merchant Processing Fees and credits your Revenue account. Enter the amount that you found on your statement in Step 1 above.


 

 

There you have it.  After completing these tasks, the monthly gross revenue on your books (related to that merchant processor) will tie perfectly to your monthly merchant account statement.

Your processor, in addition to charging you merchant fees on each deposit, may also assess a month end fee.  This fee will typically not hit your bank until the following month.  It is important to have this fee recorded in the same month when the related processing occurred.  To do this, simply create a payable, dated on the last day of the month, for the amount of the month end merchant fees, and then when the charge hits the bank, record it as a bill payment or reduction in the payable.  Happy reconciling!

Marc Andrus

Marc Andrus
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