How Chargebacks Can Destroy Your Accounting Books – The Nightmare of Chargeback Accounting

Why Chargeback Accounting can be a real bookkeeping nightmare?

Chargeback accounts are essentially the way a bookkeeper records a chargeable transaction. The terms are commonly regarded as referring to credit card chargebacks. It’s advisable to stop charging for faulty data. The procedure is time-consuming, complicated, and biased towards the cardholder but complications never cease. Accurate reporting is an absolute necessity if your company wants to determine and track the real cost of its operation.

Tell me the meaning of a chargeback?

Chargebacks are the forced reversal of transactions made by cardholders. They are part of government regulation requiring protection for the consumer who is the victim of fraud and dishonest merchant activities. Cards with an outstanding dispute can call the card’s issuing bank asking them to refund the transaction in the same way they were billed. If a chargeback was accepted it could be refunded in cash to the cardholder’s account. Sometimes a chargeback may be challenged affecting the recordkeeping process.

What goes where?

Chargeback accounting consists of many variables. It is difficult to explain the process completely as you have different banking processes for every bank processor and for every accounting system you use. Ultimately you can choose to reverse charges or not – you’ll either lose it. The process doesn’t seem as easy as you think. In case of dispute, the amount refunded is automatically lost.

The impact of your merchant account

As with any other accounting software, it’s not possible to get an accurate report from a charging account if it is not entered correctly. How you display your credit report information will also depend on where you hold your merchant card. Bank charges can be listed in the same line item on your monthly report. Banks understand the need to ensure this information is clear and easily available. To make reconciliation easy, you need a partner with the tools and expertise to adequately handle chargebacks correctly. For instance, PayPro is an eCommerce solution ready to professionally handle chargebacks and provide your shoppers with the much-needed protection. Reconciliation also makes reconciliation easy.

The chargeback dispute process takes time

Contesting a chargeback can sometimes last weeks. It’s possible the chargeback process will take money from your credit card in May, although it’s not possible to resolve the claim in July… and possibly even later. The cases may last for the duration of the entire fiscal year. So it is incredibly frustrating to manage different amounts and payments over inconsistent time periods.

Chargebacks are irregular

Typically checks are predictable and most businesses can easily estimate the number of deposit each week. In the event of a chargeback, the problem often occurs. Although receiving low charges may be helpful, it could create accounting problems. Employee mistakes could lead to problems later.

There are multiple expenses to track

Refunds will be valid or not. This requires documentation of two transactions at two different locations. This does not include the cost of the chargeback, like replacement of the lost merchandise and shipping fees, legal and administrative fees, and disputed cases.

The challenge of chargeback accounting

Accounting is often challenging for non-accountants. Chargeback accounts are only another aspect, albeit with some speed bumps. Even though accounting professionals can help, there are still some additional complications that arise in the chargeback process.

How can a chargeback be recorded?

Post charges on a wrong account may result in your financial reports being incorrect or obfuscating what is actually going on in the event of a charge. Charge refunds are NOT refunds. The exact accounting of chargebacks depends upon your business practices and software, here are several common ways of analyzing chargebacks. This makes the chargeback the same money you owe and you expect the return.

What are Journal entries for Chargebacks?

The accounting of the chargeback transaction consists of two parts. First, the customer buys a product and initiates chargeback transactions. A second case involves the seller selling the product after the customer disputes the product. In each case, charges will differ in terms.

For sellers

For sellers, charging back transactions can become arduous. The seller is able to guess the number of transactions they will receive. Occasionally the parties can be required to take disciplinary action. Companies must generally be sure that any successful chargeback transaction will occur at least once they are successful. If not, the company can report this information to the appropriate person through their disclosures. However, in reality, companies have no provision for all transactions. Most often the companies estimate the costs of such transactions if the historical data is not available. If the latter is successful, it can make provisions based on percentages.

For buyers

For the purchaser, the accounting for the charges owed is initiated by disputes relating to their purchase. Immediately after the transaction is completed, the customer will be contacted by a card provider, confirming whether the company is allowed. The buyer generally has 125 days to get it. If an issue arises between the card provider and the purchaser, the customer can anticipate economic benefits. However, the seller can not record assets without ensuring that the chargeback will be successful. The assurance usually comes only as soon as an investment is made. In effect, the buyer must register all charges on his account only when they are credited.


The entire process of fighting a chargeback, merchant response, and card issuer investigation is a long and complicated one that is weighted in favor of the cardholder. However, if you take the necessary precautions to protect your business and data, you can avoid most chargebacks and minimize any damage they may cause.


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