How to Record Credit Card Processing Fees for Legal Fees
Accounting for merchant processing fees when a client pays their legal bill via credit card, specifically handling the Trust vs. Operating account split.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash - Operating Account (Net Proceeds) | Asset (+) | 970.00 | - |
| Bank & Credit Card Processing Fees | Expense (+) | 30.00 | - |
| Accounts Receivable - Client | Asset (-) | - | 1,000.00 |
💡 Accountant's Note
When a client pays a $1,000 invoice via credit card, the firm typically receives $970. Under GAAP, the firm must 'gross up' the entry by crediting AR for the full $1,000 and recording the $30 difference as an expense. In many jurisdictions, it is ethically prohibited to deduct these fees from a Trust (IOLTA) account; therefore, the processing fees must always hit the Operating account.
Practitioner & Systems Framework
💻 ERP Architecture
Use a legal-specific processor (like LawPay) that is configured to take the full payment into Trust and pull the processing fees separately from the Operating account to ensure Trust compliance.
⚠️ Audit Flags
Short-changing the Trust account. If $1,000 is intended for the Trust account but only $970 is deposited due to fees, the firm has technically 'misappropriated' $30 of client money.
📄 Required Documentation
Merchant processing statement and the original client invoice.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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