Accounting for Credit Card: Entry for Purchasing, Selling, and More


Recording credit card details into accounts is a very complex task. Laws and regulations require that details of each transaction of every credit card must be recorded in detail. They are recording a single credit card single statement into the credit issuer’s account, such as Amex or Bank of America.

While the credit card issuers can be independent such as American Express, or dependent such as Bank of America or Wells Fargo in the United States of America, the credit card statements are recorded into a company’s account.

How it works?

There are two different scenarios for how it works. Both of them are explained below:

Entry for purchasing

Consider, for example; you use your credit card to purchase an item of clothing. This will generate a credit card statement which will be sent to the credit card issuer. Assuming everything is clear on your side and that you have not exceeded your credit card limit, the detailed entry of purchase enters the credit card issuer’s accounting system.

The credit card issuer will have an account in its accounting system with your name. Now it will debit that purchase of clothing to your account while crediting an equal amount of that purchase with its own account.

Furthermore, every card issue, whether an independent issuer such as American Express or a dependent issuer such as J.P Morgan Chase or Bank of America, or Wells Fargo, each have a system that classifies the credit card user and its purchase based on the price of purchase and credit scores of the purchaser.

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Entry for payment

On the other side, when you pay your credit card bills, the issuers move the credit from its account to your account. So, in this way, credit cards work similarly to how a bank account works, but the position of credit card user and credit card issuer is reversed.

Accounting Journal Entry scenarios for credit card

Two main scenarios play out when people use credit cards and then later pay for the credit cards. These two scenarios are noted in figure 1 below:

Figure 1: Accounting journal scenarios for payment of credit card

The two scenarios shown in figure 1 for the accounting journal entry are when the credit card holders pay cash immediately and when the credit card holders pay at a later date.

How these two affect the account of the credit card holder and credit card issuer differs depending on the credit card issuer and the credit score of the credit card holder, but the standard scenario holds for both scenarios. The detail of both scenarios is given in detail below:

When it is paid immediately?

The cash is paid immediately when the credit card holder purchases something from a retailer that has a point of sale or a POS system. Before, this process was highly manual. The retailer and credit card holder would need to confirm the purchase before cash was deposited into the bank account of a retailer.

But now, the whole system has been automated due to the implementation of the POS system. The transaction is processed automatically and transferred immediately into the bank account of the retailer.

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This leads to a faster transaction and a change in how this transaction is noted in the statements of the credit card issuer. Table 1 below shows the transaction that would be noted in the accounting journal of the credit card issuer.

Bank AccountDebit
Commission AccountDebit
To sales AccountCredit

Table 1: How a transaction is noted in accounts journals of the credit card issuer

In table 1, which side is credited and which side is debited is shown. The bank account represents the buyer’s account. The commission account represents the banks’ side. To sales, the account is the retailer’s account. First of all, the buyer’s account is debited, and the payment is sent to the bank.

The bank’s account then sends this payment to the retailer’s account. The retailer’s account is credited with the final payment. This is a step-by-step process, but it does happen very fast. In the final step, the retailer’s account is credited with the amount which is equal to the purchase by the credit cardholder.

Accounting scenario for sale when cash is obtained at a later date

Sometimes, either the independent credit card issuer or the retailer is not connected with the bank that has to process the payment; it may take some time to process the payment. The retailer’s bank would have to process the transfer of the payment from the other bank.

The usual transfer time is 3-5 days, and sometimes, it may take even more time. There may even be some commission involved with the transfer. So, this scenario is not desirable for the retailer. The retailer would have to pay the commission fee out of their own profits.

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The step-by-step process for it is the same as shown in Table 1. But, how the receivables are transferred depends upon a different process noted in the given example.


A retailer has sales worth fifty thousand dollars. But, the transfers are from another bank that charges a two percent commission fee, so how the receivables are reported is shown in table 2 below:

Accounts receivables account50,000
To sales account49,000
Bank Account ( 2% of sales)49,000
Commission Account10,000
To accounts receivables account50,000

Table 1: How Commission is charged and accounts shown

After paying the Commission, the total cash that the retailer received in the bank account was 49,000 U.S. Dollars.


The accounts for a credit card is a very different process than the usual journal account bookkeeping. It involves many complex processes and depends largely upon the credit card issuer. The main impact of commission fees charged by the credit card provider mainly falls on the retailer, impacting how the retailers do their bookkeeping.