newbie - CC sales & returns

Hi, I'm hoping to start my own business and I'm trying to teaching myself bookkeeping. I have a question regarding a sale paid by credit card that gets returned.
Here is the transaction: Customer buys $100 worth of CDs with tax rate of 8% using a credit card (MC).Credit card fee is 6% and COGS is $75. I believe there is 6 distributions involved. Correct me if I'm wrong.
(asset acct.)     1 Accounts Receivable - MC/Visa 102.00 (expense acct.)    2 Credit Card Service Charge - MC/Visa 6.00 (revenue acct.)     3 Sales 100.00 (liability acct.) 4 Sales Tax Payable 8.00 (cost acct.)     5 Merchandise Purchases (COGS) - CDs 75.00 (asset acct.)     6 Inventory - CDs 75.00
In case the text gets all distorted when I post this, here is a written description of the DR/CR. 1) debit the asset acct. AR-Mastercard for total sale amt (including tax) less CC fee amt.- 102.00 2) debit the expense acct. CC fees - 6.00 3) credit revenue acct. Sales for sale amount less tax -100.00 4) credit liability acct. Sales Tax Payable - 8.00 5) debit Cost acct. Merchandise Purchases - CDs - 75.00 6) credit Inventory - CDs - 75.00
I hope this is correct, text books never show all the accounts that get hit. They have very simple examples.
Now, I'm not sure how to handle the return. Since we have to now give a charge back to the customer, we have to go through MC again so I'm assuming they will charge me again for the transaction, that is I just can't reverse the cc service charge #2 above. I guess each transaction is charged by the cc company regardless correct?
Any help will be appreciated. TIA J
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You can debit an A?R Mastercard account if you wish, but theyu get credited to your bank pretty quickly these days (couple of days tops) so I would just debit the bank and be done with it. Also in this area they post the full charged amount and hit your account for the merchant fees on a monthly basis. So ther wouldn't be the need to account for an adjusted receivable if you were to book the sale as a receivable for the few days it's outstanding. I also wouldn't book the merchant discount as a payable on a per-sales transaction.

Oh you bet there's a fee for refunds, most likely the same rate. That is one reason that smaller merchants require a "restocking" fee to cover some of those costs and to deter returns.
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Paul A. Thomas, CPA
Athens, Georgia
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why not? I thought this would really help with bank rec. don't forget, this will all be in an accounting package and i can do a report on the cc fee account for the date range given in the bank rec statement and compare the two amounts.
j
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also, say I'm a mail order company or an ecommerce company. how do I journalize shipping on a sales transaction. I know shipping is an expense so I'd debit something like Shipping right? but what would I credit?
TIA
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Credit a liability account - say shipping payable Then when you get your shipping bill, debit shipping payable, credit A/P or cash
Unless you know the exact amount, this could require reconciliation I usually see entries for shipping when the business charges for it, somewhat rarely in your case - when it is just an expense It could be useful if you want to track shipping costs by say product line etc.
HS

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Sorry, maybe I didn't explain myself correctly. This is a typical mail order transaction. I mean, when I charge the customer S&H. I guess I just credit S&H and add the amount to the account receivable?
For Example:
Debits: Accounts Receivable - MC/Visa = 116.10 Credit Card Service Charge - MC/Visa = 6.90 Debits Total: $123.00
Credits: Sales = 100.00 S&H = 15.00 Sales Tax Payable = 8.00 Credits total: $123.00
Since S&H is charged when the order is taken, is this a revenue account? And what I actually pay to ship the order may be different than what was charged. It could be a win some/lose some situation where I make money or could lose money. so how is this treated?
Now if the customer returns the goods, I guess it depends on who pays for return shipping. Most reputable companies will pay for the return shipping, so if the company offers to pay return shipping, it's not a contra-account right? It's an expense account called something like S&H Returns? Am I correct on this?
TIA J
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HS: Yes. Correct.
<snip>

HS: A lot of cos now treat S&H as a profit center. (For some businesses, Amazon used books shippers for example, it is the only profit center.) I would treat it as revenue and credit a separate income account That way, You can periodically review and revise shipping charges as needed.

HS: I would not call it a contra account. it is an expense account.
It's an expense account called something like

HS: Yes, that is right. You could debit the expense to the regular shipping expenses acct or to a sub account for returns.
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HS, can you give me a dr/cr example. Using same example names so I can see it. When I see things I understand them better. Thx.
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I don't think a dr/cr example is needed. Nevertheless: sales Revenue Cr 100 s&H Revenue Cr 10 Accts Receivable Dr 110
S&H Revenue acount shows you the amont you have collected over a given period. Shipping Expenses Account will accumulate the costs over the same period If the sum of the balances of the two shipping accounts should offset one another. Granted there can be a month's delay; you could accrue expenses at the end of teh period if you want to particular and meticulous.
HS

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Guys!
Thanks for batting this answer out. I had the same questions about returns today and your straight forward answers and examples have really helped.
I always think it's great that these things not only help the person who originally asked, but that they are kept forever as a reference for the rest of us.
Cheers,
Darryl
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It's very hard to reconcile hundreds of thousands of transactions to the probable single withdrawal from the bank.

Feel free. I doubt it'll reconcile to the penny - ever.
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Paul A. Thomas, CPA
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FYI: AMEX is the only one I know of that takes their discount up front. Meaning for a $300 charge you see a $291 deposit to your bank. It really screws up your reconciliation.
I'd also look for a cheaper merchant discount fee. 6% is way above the norm. 3% is the average I've seen. Larger retailers see even less of a discount.
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Paul A. Thomas, CPA
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On Fri, 15 Jun 2007 07:47:04 -0700, hdjim69 wrote:

You could set up a contra account called "Sales Returns" and deduct from gross sales to get net sales. Also, most credit card sales are now considered cash sales from the merchant's perspective.
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