USA Credit card merchant fees and cash discounts


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I have a thrift store where I sell product on consignment. My vendor brings product in for me to sell. I just purchased a POS system that includes the merchant fees in the price of the product. Therefore, when I enter the vendor's inventory in the POS system, I increase the price of their product by 4% of the product price to include merchant fees. The higher price is listed on the price tag. If the customer pays with a credit card, they pay the 4%, the price that is listed on the tag. If a customer pays with cash, they receive a 4% discount bringing price of the product to the actual price that the vendor was asking for the item.

Example: A bookcase has a price tag of $104 which is $100 + the 4% merchant fees. If purchased with a credit card, the customer pays $104. So I have the journal entry for a credit card purchase as Cash $104 and Sales $100/Merchant fees payable $4. Is that right? However, on a cash sale, I am only collecting $100 from the customer which would be Cash $100/Sales $100, but my product is listed as $104 in my POS inventory. What do I do with the $4?
 
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Werner Reisacher

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Since you mention that you have vendors, I assume that you run a for-profit operation. Don't get confused by the fact that your POS is miraculously generating additional income. I am sure, that the sales pitch from the salesperson to invest in an asset that pays for itself in the first year was convincing.
From a sales tax point of view - provided that you have sales taxes in your State - the amount you collected for the products represents your taxable income.
From a legal point of view, you have to carefully read the contractual agreements you enter with your consignors at the time they deliver their goods. How is the profit-sharing defined? Do you share a certain % of the Gross Sales price (sales tags) or are you allowed to pocket the $ 4 prior to sharing? Otherwise, you will sooner than later run into problems with the customers who see the price tags on their goods and/or the law.
 
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The POS is not generating additional income. If anything it is creating an additional expense in leasing the equipment and higher fees to offer my customers the option to pay by credit cards. I do collect sales tax, but I understand the treatment of collecting and paying the tax authority so I did not add that to my question. However, what I was asking was the treatment of the 4% on a cash sale. I am not collecting the 4% on a cash sale so it is not income, but since I have the inventory listed 4% higher I am trying to figure out how to correctly reduce my inventory. The POS company calls it a cash discount. I collect the cash for the sales which of course uses the cash and sales account respectively. I think in typing this out I just got my answer. Since I am increasing the vendor's price for the product in inventory for the sole purpose of the merchant fees, I would have to create a "cash discount" account for each vendor which would allow me to reduce that vendor's inventory by the increased amount, but not recognize income or merchant fees payables. Correct?
 
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If your billing software allows you can create two different Sales Invoice type one for credit card and another for cash. The software should be set up for takes the SKU rates as per the Sales Templates selected at the time of raising the invoice.
 

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