Bookkeeping for Card Payments: Gross Sales, Fees and Refunds

Why the deposit is not your sales figure

Visa's Core Rules (18 April 2026) say an acquirer pays its merchant the transaction totals less any credit transactions, applicable discounts, disputes, other agreed fees or reserve funds. So a deposit can already have refunds, fees, chargebacks and reserves taken out, and some providers bill fees separately each month instead. If you book the deposit as sales, those costs disappear into a smaller revenue figure and you cannot see what processing costs you.

The gross-up entry

Illustrative example only, with made-up round numbers. Card sales for the day are $10,000, one refund is $300 and processing fees deducted that day are $250, so $9,450 arrives in the bank. The bookkeeping entry records $10,000 of sales, $300 of refunds (returns and allowances), $250 to a merchant fees expense account, and $9,450 of cash. Sales tax collected, tips owed to staff and any reserve held back need their own lines too. If your provider bills fees monthly instead, record the daily deposit against sales and refunds, then record the monthly fee debit to the same fees account.

How it ties to Form 1099-K

The IRS page on what to do with Form 1099-K says the gross payment amount in box 1a shows the total value of payment card and third-party network payments, and is not adjusted for fees, credits, refunds, shipping, cash equivalents or discounts. It says these items are not taxable income and can be deducted from the gross amount, and tells you to check your records, including merchant statements. Publication 334 (2025) adds that the form may not be the amount you should report as income: it may not include all receipts and may include items that are not receipts, such as sales tax. Gross-up bookkeeping makes that comparison a matter of reading your ledger. Our Form 1099-K guide covers thresholds and corrections.

Where fees and refunds go

Publication 334 says a business expense must be both ordinary and necessary to be deductible, and defines an ordinary expense as one that is common and accepted in your field and a necessary expense as one that is helpful and appropriate for your business. It says returns and allowances include cash or credit refunds you make to customers, rebates and other allowances off the sales price, and are subtracted from gross receipts on Schedule C. A dedicated merchant fees expense account, separate from bank charges, keeps the processing cost visible. Confirm the exact line on your return with your tax preparer.

Chargebacks, surcharges and reserves

A chargeback reverses a sale, and a chargeback fee is a separate cost, so record them on separate lines rather than as one adjustment. Money held in a reserve is still yours but not yet in your bank, so track it as a receivable until it is released. Surcharge revenue and any sales tax on it need their own treatment; our sales tax on surcharges guide lists state guidance. Ask your accountant how each should be classified in your chart of accounts.

What to keep and for how long

Publication 583 says your books must show gross income, deductions and credits, and lists bank deposit slips and credit card charge slips among the supporting documents for gross receipts. It says to keep records that support income or deductions until the period of limitations for that return runs out. Its Table 3 gives 3 years in the general case, 6 years if you leave out income that is more than 25% of the gross income shown on the return, 7 years for a claim for a loss from worthless securities or a bad debt deduction, and no limit if you file a fraudulent return or do not file. Keep monthly processor statements with the deposit records they explain.