credit-card-reconciliation

Context

In a recent review of one our clients’ accounts, I was shocked to see that the accountant has reconciled the bank accounts but did not reconcile the credit card receipts. When I probed, I was even more perplexed with the reason. He claimed that the bank pays all the credit cards the next day and hence I account for the difference as bank charges and close the account. I asked him about input VAT and he is simply unaware saying that bank doesn’t charge VAT on credit card commission. He also gave me a reason that if the credit card holder doesn’t pay, its bank’s problem and not the company’s. Hence, all the credit cards we accept, bank will reimburse irrespective of the fact, whether the cardholder pays or not.

Problem

The fact of the matter is that he doesn’t know the credit card accounting. He has been accounting for the difference as credit card charges without considering Input VAT and incurring further losses to the company. I agree that the Bank shall pay irrespective of the fact whether the cardholders pays or not; but it doesn’t mean Bank is always right. What happens if the bank misses out a particular card in transmission? Who is responsible for the collection from the Bank?

Solution

There is no alternative to credit card reconciliation. Many accountants are avoiding this work as it is tedious and once you delay even by a day, it’s going to pile up. If you don’t reconcile on a daily basis, you are going to spend hours in reconciling. So, here is the solution:

  1. The Credit card accounting starts with the sales entry. You need to create Credit Card Receivable Account.
  2. You should open a separate card account for each type of card. i.e. Visa, Master, Amex, Dinners, etc. The reason is that the commission charged by each card is different.   Also, at times, the commission charged on the cards issued within UAE and outside UAE can be different.
  3. If the bank charges 1% commission on a type of card, the bank will also charge 5% VAT on 1% commission. That means out of AED 100 card collected, Bank will 100-1-.05=98.95.
  4. Don’t forget to ask a statement cum invoice at the end of the month to claim input tax.
  5. If you are more than one credit card acquirers, you need to open separate accounts in your books.
  6. If you are asking the Bank to transfer money to different bank accounts, your accounting is even more critical.
  7. You also need to watch out the timing of transmission report, especially if you are closing your shop post-midnight or have a 24-hour operation. As Banks may have a transmission time at 12 midnight, but if you are closing your shop at say 2 AM, then the pay-out will be made in two separate days.  For example, the cards accepted before the midnight (transmission time) will be paid the next day and the post transmission time, will be added to next day’s cards.
  8. Above all don’t forget, cashiers do mistakes on a regular basis and you need to check the POS report thoroughly.  Cashiers will enter cash receipt instead of card receipts and your daily cash reconciliation will not tally.

Impact

Credit card reconciliation is as critical as bank reconciliation. In some countries, you still have to send the credit card slips to the banks manually. If don’t send those slips, bank is not going to pay you. Hence, you need to treat them as debtors though only for a day. If you don’t reconcile them on a daily basis, there is a chance that you will lose control over your receivables and money is as good as lost.

Call to action

You need to see your chart of accounts and the composition of end of the day POS report and match both. Otherwise, you will struggle on a daily basis for verifying entries as well as reconciling them.

We at 24 A Plus Consultants train accountants to do their daily jobs. This was another grey area we found added to our “How to be a good Accountant” series of training the accountants. Our emphasis is to make your accountants self-reliant and you get your accurate reports in time.

If you have an issue with your accounts- and we know many of you do have- please contact us and we can help you fix the issues.