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Accounting for credit card fees

credit card swipe

Question:

What is the industry convention on accounting for credit card processing fees? It seems like a cost of goods sold, like you’re not likely to get a sale if you don’t pay them, or perhaps even a reduction of sales revenue? Anyway, I don’t want to buck the industry convention and make my numbers even more difficult to compare.

– Ed, Accountant, Bree Enterprises, Fayetteville, Ark.

Answer:

It’s great that you are thinking about keeping your food cost numbers “clean” by not lumping anything in there that shouldn’t be. While I see your rationale that, in your case, you cannot sell food without paying the costs of these processing fees, industry convention is not to put those expenses in a category related to costs of goods sold. By restricting food and beverage costs to the direct goods sold (or used to make things for sale in the case of foods like frying oil), you will get a more accurate picture of your food cost percentage, which, along with labor cost (or prime cost when considered together), can help you monitor your performance over time, compare yourself to peer operations, and make strategic decisions.

It is right, also, that credit card processing fees, for many operators, are an increasingly necessary (and significant) expense of doing business. My go-to restaurant industry accountant is Mary Sigel of Sigel & Associates in Berwyn, Pa. She says, “Additional costs such as credit card processing are a line item in the P&L. We usually house them under Administrative Fees, Taxes and Expenses, which is the catchall category for … loan interest, professional fees, liability insurance, accounting, legal etc.”

More on credit card processing fees here.

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