Many businesses use credit cards. Using credit cards is convenient and helps manage cash, and there are other benefits to using credit cards such as getting cashback rewards.
From an accounting standpoint, cash back is technically a purchase rebate, a reduction of expense, rather than business revenue. Categorizing it improperly to an income account inflates and misstates gross revenue.
Recording options:
There are two ways to record the cash back and rewards properly.
Record as “Other Income”
Creating a account named Credit Card Rewards / Cash Back under other income, and record the rewards to that account. This helps operational revenue clean.
Offset the original expense
If the cash back is direct statement credit tied to general office purchases, the cash back can be recorded to offset the original expense account (e.g., office supplies). If the credit is for travel spends, the rewards can be offset in a travel account originally used to record the travel expense.
The Underlying Journal Entry
If you are entering this transaction manually via Journal Entry or Expense form, the accounting logic looks like this:
When a $50 cash back credit appears on the credit card feed:
Dr. Credit Card Account $50.00
Cr. Credit Card Rewards $50.00 (Or Original expense account)
