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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.

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2 Answers 2

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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 § 61"

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

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  • Exactly what I was looking for! So, in effect, a negative expense (against a special "expense" account rather than the "expenses:travel" account). Do you happen to know if that's what the "Expenses:Adjustment" account is intended for, in GnuCash's default account hierarchy? EDIT: Looks like that's not its intended purpose, so I'll make a separate account.
    – Wildcard
    Commented Jul 29, 2018 at 19:44
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    I do not know GnuCash, only GAAP. But from a quick search there is no clean way to do it. gnucash.org/docs/v3/C/gnucash-guide/dep_accounts1.html
    – A.K.
    Commented Jul 29, 2018 at 19:48
  • Great; I'll wait a couple days before giving the checkmark in case anything more comprehensive comes in, but if not you'll get it. :) (And then I'll delete this comment.)
    – Wildcard
    Commented Jul 29, 2018 at 19:50
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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.

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  • Interesting idea! Do you use just one account for interest/rewards for all credit cards, or one such account per credit card?
    – Wildcard
    Commented Jul 30, 2018 at 18:41
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    One per credit card, but I think either way would work.
    – Andy
    Commented Jul 30, 2018 at 23:08

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