Journal Entry for Credit Card Rewards

Credit Card Reward is the amount of cashback that the credit card company or bank provides to customers to encourage their spending using the card.

Nowadays, almost everybody has access to a credit card. It allows people to use the money first and payback later. The credit cardholders will have to pay back later based on the schedule. It means the holder will borrow the money from bank to use for any purchase, and they have to settle with bank later.

In order to attract customer, most credit card providers allow the customer to participate in the customer loyalty program. It encourages the customer to use the credit card in their daily spending. The more customers pay using a credit card, the more interest will be charged based on the agreed term.

There are many types of credit card rewards that are used by different credit card company. It can provide cashback to the customers when they make payments over a certain threshold. Some companies provide cashback as the percentage of the purchase transaction. The other credit card company designs the reward points for customers when they are making purchases. The points will be accumulated and the customers are able to convert them to cash.

The customer has to record the credit card reward as the other income on the income statement. It is the cash that card issuers provide to their customers after meeting certain criteria.

Journal Entry for Credit Card Rewards

When the company receives a credit card reward, account has to record it as the other income in the other comprehensive income statement. The journal entry is debiting cash at the bank and credit other income.

Account	Debit	Credit
Cash at bank	$$$
Other incomes		$$$

This transaction is only applicable when the credit card company provides cash as a reward. If they offer other kinds of rewards besides cash, we cannot record using this journal entry.

Moreover, other income is not related to company performance, it is recorded in the statement of comprehensive income.

Example

Company ABC has used a credit card to pay for some small payments online. During the month, company receives cashback of $ 100 due to last month’s purchase. The reward is credited to the company bank balance. Accountant is seeking advice to record the cashback reward. Please prepare journal entry for credit card rewards.

Credit card cashback is one of the rewards that card issuers provide to their customer to encourage purchase. When ABC receive these rewards, accountant has to record it as the other income on the income statement.

Account	Debit	Credit
Cash at bank	100
Other incomes		100

The transaction will increase cash at bank balance of $ 100 and the other income for the same amount. However, it is recorded as the other income which does not impact the company performance.