BACK

Your Business Credit

How to calculate ‘total revenue’ when a business accepts credit cards

Summary

If your business accepts credit cards, credit card processing fees won’t affect the ‘total revenue’ of a transaction — but they do affect your ‘profit.’ Here’s how to enter card processing fees in your books.

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

 

How do you calculate ‘total revenue’ when your business accepts credit cards?

The “total revenue” is the amount the customer paid regardless of payment form. Credit card processing fees, however, do affect your profit.

 

Dear Your Business Credit,

When your business accepts credit cards, how do you calculate “total revenue”?

Do you use the amount of the invoice – for example, $200 – or the amount that was actually deposited into your bank account – let’s say $189.50, in the example? – Aja

Dear Aja,

Great question. I had to address it in my own business not long ago and got advice from my bookkeeper:

  • When you accept credit cards, the “total revenue” is the amount the customer paid.
  • Assuming, in your example, the customer paid $200 on the $200 invoice and not a partial payment, the total revenue would be $200.
  • So, after you’ve created the invoice, you’ll need to give the customer full credit for the $200 invoice amount to indicate you received the payment.

See related: How high of a fee do businesses pay to accept cards?

How to enter credit card processing fees in your books

Once you’ve done that, you’ll need to record the processing fee.

  • I currently use QuickBooks, and my bookkeeper enters credit card processing fees in the “cost of goods sold” column there.
  • Any cost-of-goods-sold items appear in the “chart of accounts” in the program, where you can look at information such as how much you spent in one month on credit card processing fees.
  • So, continuing with your example, let’s say you paid a processing fee of $10.50, or 5.25 percent, when a customer used a bank credit card, such as Visa or Mastercard. (The 5.25 percent seems a bit high, by the way. The average credit card processing fee stands between 1.40 percent and 3 percent).
  • Once you subtract the $10.50, you will know your profit from the sale – in this case, $189.50 – assuming there were no other costs associated with the transaction.
  • When you run your profit-and-loss report in your accounting software, you’ll see that the “cost of goods sold” is subtracted from your total income to give you your gross profit. That’s different from your revenue.

If you’re more of a visual learner, you may find this video from Long for Success advisor Michelle Long on how to enter these transactions helpful:

Every accounting software is a little different, and they are constantly being updated, so you may have to consult the provider’s educational materials to find out how to enter a cost of goods sold.

  • For FreshBooks, another major accounting platform for small business, you can consult this guide.
  • For Xero Accounting, here is a a helpful video from the Business Boost Centre on how to enter credit card processing fees:

Tip

Tip: If you’re looking for low-cost options to accept credit cards in your business, you may consider Square, Clover or PayPal. Read “What are some low-cost options to process credit cards for my business?” to learn more.

Make sure card payments are entered correctly in your books

In some cases, I’ve found that when I get a digital credit card payment, such as one made through the invoicing software, it is automatically entered.

You will want to double-check these entries to make sure all your credit card fees are being entered in a consistent way.

Otherwise, it will be hard to keep track of what you are spending on credit card processing fees.

I hope this explanation on total revenue and credit card processing fees was useful. And thanks again for your question!

What’s up next?

In Your Business Credit

How to deal with business credit card debt from startup partnership fallout

Dealing with business credit card debt following a startup partnership gone wrong? Start by seeking legal help. If you’re personally responsible for the debt, you may have to make minimum payments on the card until the matter is resolved.

Published: September 17, 2018

See more stories
Credit Card Rate Report Updated: June 12th, 2019
Business
15.61%
Airline
17.54%
Cash Back
17.68%
Reward
17.57%
Student
17.79%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.