6

A credit card statement credit is a reduction in liability, so I would think it's "income" of a sort.

But, I could also see it as a reduction in expense; for example, buying a plane ticket using a credit card with 3% "cash back" (that gets applied as a statement credit) is sort of like a rebate or a delayed discount to that same expense.

Is there any general consensus or "best practice" for how to account for such things? I could enter it as a negative expense, or as a special kind of income. But if it's as a negative expense, it raises another question, which is: what kind of expense should it be entered as (i.e. which expense account)?

(The example with a plane flight and one big lump sum is clear enough as a negative expense, but how about 1% back on all purchases gradually adding up and finally resulting in one big statement credit?)

If it's entered as income, won't this falsely alter my income/expenses reports from a tax perspective? (Since it's not really income. Or is it, legally?)

I'm new to double-entry accounting and this question is general rather than specific to a single tool, but I'm starting to use GnuCash so answers geared toward how to implement the solution in GnuCash are especially welcome.

Wildcard
  • 477
  • 4
  • 11

2 Answers2

7

Per IRS Private Letter Ruling 141607-09 :

"The portion of the credit card purchases that Taxpayers can either receive back in cash or request Company to pay to a charity does not constitute gross income under ยง 61"

Your cash back should be considered a discount which would go into a contra-expense account when received by you.

A.K.
  • 328
  • 2
  • 12
3

As recommended by A.K. I do monitor this as a contra-expense, however I use the 'Expenses:CreditCard:Interest' account for this purpose (in addition to any interest accrual). This helps me see the total cost of the credit card as interest minus rewards. If you don't pay any interest, you'll just see rewards/cash-back and can easily calculate the effective interest rate of the credit-card, which might even be positive.

Andy
  • 1,458
  • 9
  • 13