It’s a common practice to report chargebacks as an offset to income or negative income. However, this will result in discrepancies between the POS sales reports and your financial statement. That’s why we recommend reporting chargebacks in your accounts receivable statement rather than your income statement.
We’ve put together a quick (2 minute) video to help you ensure your financial reporting stays accurate. You can also read the transcript below.
In this short video, I’m going to discuss recommendations for handling chargebacks in your financial reporting – both when they happen directly and when working with 3rd-party delivery services.
As you know, when it comes to chargebacks, credit cards will typically honor a customer dispute in the customer’s favor, refunding the money and taking it out of the vendor’s account. However, from an accounting standpoint, since your business made the initial charge in good faith, the money is still owed to your business. That’s why we recommend reporting chargebacks in your accounts receivable statement rather than your income statement.
It’s a common practice to report chargebacks as an offset to income or negative income. However, this will result in discrepancies between the POS sales reports and your financial statement. This is because the chargebacks generally come in several days after the initial charge. So, if a chargeback comes through on the fourth of May for a sale made on April 30th – and the chargeback is recorded as negative income when it comes through – then your May financial statement will be off.
That’s why recording chargebacks under accounts receivable will help to keep your sales report and income statements aligned. When a chargeback comes in, move it to your accounts receivable report until the dispute has been settled. If it is not ultimately settled in your favor, then the chargeback becomes an expense, and you can move it over to your expense report as uncollectible debt. Again, this practice avoids creating discrepancies in your income statement.
When working with 3rd-party delivery services, you typically have less control over chargeback disputes. Depending on the vendor you’re working with, the monthly reporting can be confusing. And, because the credit card is processed through the 3rd-party’s system, they will often then simply subtract the chargeback from your monthly income.
Unfortunately, there is often little that the restaurant can do in these cases, so it’s important to get a clear understanding of the 3rd-party services’ efforts to dispute chargebacks. Look at the terms of your management agreement and make sure the 3rd-party service makes reasonable efforts to dispute chargebacks.
It’s also important to have good reconciliation each month between your sales reports and the 3rd-party’s reporting, which we covered in a previous video in this series. If you’d like help with any of these challenges, OnePoint would love to assist. Reach out today to speak with one of our experienced account managers about OnePoints accounting services.
