How to Do Accounting for Fraudulent Credit Card Use?

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- Will
  
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posted
18 years ago

Wed, Aug 17, 2005 2:50 AM

We were hit by a group of fraudulent credit card charges in the last few months, and I'm wondering how to best do the accounting for these. For now we have created an expense account to hold these charges, and eventually the credit card company will credit these back so the account will net to zero.

I would rather not create an income statement expense account whose content is fraudulent uses of our credit cards. It just messes up the income statement, and it's really not an operational expense. Is it best to do this as an "Other Expense", or should I be looking for a solution that puts these onto the balance sheet?

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- David Jensen
  
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posted
18 years ago

Wed, Aug 17, 2005 3:36 AM

On Tue, 16 Aug 2005 19:50:23 -0700, in alt.accounting "Will" wrote in :

If they have told you that it will be credited back, go ahead and put them on as a some sort of short term receivable to balance the lost cash or payable (if you didn't have to pay the bill).

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posted
18 years ago

Wed, Aug 17, 2005 1:35 PM

Same thing happened to one of my clients. It took 21 months, 18 phone calls, 12 letters, 3 detailed analyses, and 2 affidavits to get the charges reversed (though I've known other such situations to be resolved in about 2 months).

2 bits of advice:

- Considering my client's experience, keep very detailed records of all info about the fraudulent charges and the steps you take to obtain credit from the financial institution.

- Ask your accountant. "Other expenses" are still "income statement expenses", though you may consider that it "messes up" the income statement somewhat less than an "operational" expense. Still - if you have to ask, you should be asking your accountant rather than this newsgroup. Moreover: (a) there is some risk, however slight, that you may NOT receive credit, and (b) the issue may not be resolved prior to your tax year-end; accordingly there may be justification and a tax-deferral benefit to account for these charges as an expense NOW (rather than a receivable), and record the credit as income when received. Ask your accountant.