How to record card processor deposits that arrive net of fees

Why recording only the deposit is a problem

Say clients paid $1,200 by card over three days. The processor keeps $36 in fees and deposits $1,164. If QuickBooks records the $1,164 as income, two things go wrong:

• Revenue is understated. Your Profit and Loss shows less than clients actually paid.
• The fees disappear. They are a real cost of running the practice, and they never show up as an expense.

There is a reporting reason too. The IRS notes that the gross amount on Form 1099-K is not reduced for fees, refunds, credits or discounts. If your processor sends you a 1099-K, it shows what clients paid, not what you received. Books that record the gross amount and the fees separately make that form easy for your CPA to tie out.

Start with the payout report

Every card processor, and most practice management systems that take card payments, can show a payout report: which payments went into each deposit, the fees taken, and any refunds or chargebacks. That report is your source document. The bank statement only shows the net number.

For each payout, note four things:

• The gross amount of client payments included
• The processing fees taken out
• Any refunds or chargebacks deducted
• The net amount deposited, which should match the line on your bank statement

The steps in QuickBooks Online

1. Record what clients paid

Record payments at their full amount. If you invoice clients, use Receive payment against each invoice. If you don't, use a Sales receipt. Either way, set the deposit account to Undeposited Funds. Some files show this account as Payments to deposit. It is the same account.

You don't have to enter one transaction per session. Many practices record one sales receipt per day or per payout, using totals from the practice software. Your books don't need clinical details, and keeping them out of QuickBooks is simpler.

2. Create the bank deposit

Select + Create, then Bank Deposit, and choose the bank account the payout went into. Under Select existing payments, tick the payments that were included in this payout.

3. Take out the fee

In the Add other funds to this deposit section, add a line for the processing fee as a negative amount, and choose an expense account such as Merchant fees or Bank fees. Do the same for any refund or chargeback the processor deducted, coded the way your CPA prefers.

4. Check the total, then match

The deposit total should now equal the net amount on your bank statement. Save it. When that bank line comes in through the bank feed, match it to this deposit. Don't add it again as new income.

A worked example

• Sales receipts for Monday to Wednesday, deposited to Undeposited Funds: $1,200.00
• Fee line on the bank deposit, coded to Merchant fees: minus $36.00
• Deposit total: $1,164.00, which matches the bank

Your Profit and Loss now shows $1,200 of income and $36 of fees, and the bank account shows $1,164. All three numbers are right.

Things that throw the numbers off

• Payouts that cross month-end. Payments taken on March 30 and 31 may arrive in an April deposit. Record the income on the dates clients paid and the deposit on the date it arrived. Undeposited Funds holds the difference over the month-end.
• Monthly processor charges. Some processors bill a monthly fee separately from the payouts. It shows up as its own bank line. Record it straight to the fee expense account.
• Old balances in Undeposited Funds. Payments that sit there for months were usually never grouped into a deposit, or the deposit was added again from the bank feed. Either way, the same income may be counted twice.
• Money that doesn't come through the processor. Checks, bank transfers and insurance payments arrive differently. Keep them in their own deposits so each one ties to its own source.

If months of deposits were recorded net, a cleanup fixes them payout by payout, starting from the processor's reports. See how bookkeeping for therapy practices handles this every month, or how monthly bookkeeping keeps it current.

Common questions

Should I record card payments net or gross in QuickBooks?

Gross, with the processing fees recorded separately as an expense. Recording only the net deposit hides your real revenue and your processing costs, and it won't line up with a Form 1099-K, which reports the gross amount.

What is Payments to deposit in QuickBooks Online?

It is the account also called Undeposited Funds. It holds payments you have received but not yet grouped into a bank deposit. Once each payout is recorded as a deposit, it should be close to zero.

Where do I enter the processing fee in QuickBooks Online?

On the bank deposit, in the Add other funds to this deposit section, as a negative amount coded to an expense account such as Merchant fees. The deposit total then matches what reached the bank.

Do I have to enter every session separately?

No. One sales receipt per day or per payout, using totals from your practice software or processor, is usually enough for the books. Ask your CPA if they want more detail.

This guide is general information about bookkeeping, not tax or legal advice. Rules change, so check the details with your CPA before you act on them.