Definition
Cashback is a feature associated with debit and credit card transactions that allows customers to receive cash during their purchase at a retail store or other points-of-sale (POS). When making a purchase, consumers can ask for an additional amount to be added to their transaction total, which is then given back to them in cash by the merchant.
How It Works
When customers opt for cashback during a transaction, the requested cashback amount is included in the total debit or credit card charge. For instance, when purchasing $50 worth of groceries, a customer may request $20 in cashback. The total transaction amount will then be $70, debited from the customer’s account, with $20 given back to the customer in cash.
Examples
-
Grocery Store Transaction:
- Purchase Amount: $35.00
- Cashback Requested by Customer: $15.00
- Total Amount Charged to Card: $50.00
-
Convenience Store Transaction:
- Purchase Amount: $10.00
- Cashback Requested by Customer: $20.00
- Total Amount Charged to Card: $30.00
Frequently Asked Questions
1. Is there a fee for cashback?
- Generally, retailers do not charge a fee for cashback; however, the policy varies by retailer. Some may impose a fee or only offer the service to those with specific banking services.
2. What is the maximum amount for cashback?
- This can vary by retailer and financial institution policies. Common limits are $20, $40, or $100, but asking the cashier or checking specific institutional policies is recommended.
3. Can cashback be requested on all cards?
- Typically, cashback is available with debit cards and some credit cards, primarily within the U.S. for qualifying purchases and cards. Availability varies by country, retailer, and card issuer.
4. How does cashback differ on debit cards vs. credit cards?
- With a debit card, the cashback amount is deducted directly from the checking account linked to the card. With a credit card, the amount is added to the monthly credit balance, and terms of reward cashback may apply.
5. Is cashback considered a cash advance?
- No, cashback is different from a cash advance. A cash advance involves borrowing cash through a credit card, usually with higher fees and interest rates.
Related Terms
1. Electronic Funds Transfer at Point of Sale (EFTPOS):
- A system that enables electronic payment for transactions at retail stores, interlinking bank accounts to facilitate instant money transfers.
2. Debit Card:
- A payment card that deducts money directly from a consumer’s checking account to pay for a purchase.
3. Credit Card:
- A payment card issued to users to enable them to pay a merchant for goods and services based on the cardholder’s promise to the card issuer to pay for them plus other agreed charges.
4. Cash Advance:
- A service provided by credit card issuers allowing cardholders to withdraw cash, typically leading to higher interest rates and fees.
Online References
- Investopedia - Debit vs. Credit Cards
- Visa - Cashback Program Information
- Mastercard - Cashback Information
Suggested Books for Further Studies
- “Accounting for Non-Accountants” by Wayne Label: A comprehensive guide to modern accounting principles, essential for those managing personal or business finances.
- “Principles of Accounting” by Belverd Needles and Marian Powers: An encompassing text that delves into the fundamentals of accounting and financial management.
- “Money: Master the Game” by Tony Robbins: Discusses practical tools to take control of personal financial decisions.
Accounting Basics: “Cashback” Fundamentals Quiz
### Is cashback typically charged as a fee by most retailers?
- [x] No, retailers typically do not charge a fee.
- [ ] Yes, it always comes with a fee.
- [ ] It depends on the debit card used.
- [ ] Only for transactions above a certain amount.
> **Explanation:** Most retailers do not charge a fee for cashback, although specific policies may vary by store or bank.
### What type of card is most commonly used to request cashback?
- [x] Debit card
- [ ] Prepaid card
- [ ] Store credit card
- [ ] Gift card
> **Explanation:** Cashback is most commonly requested with a debit card directly linked to the consumer’s checking account.
### When a cashback transaction is performed, where does the cashback amount come from?
- [ ] The store’s petty cash
- [x] Added to the total transaction amount
- [ ] The retailer's credit
- [ ] The card issuer's reserve fund
> **Explanation:** The cashback amount is added to the total transaction amount and debited from the customer’s account.
### What is the primary difference between cashback and a cash advance?
- [ ] Cashback is only available with credit cards.
- [ ] Cash advance has a lower interest rate.
- [x] Cashback is a feature of both debit and some credit cards, while a cash advance is a credit card service with higher fees/interest.
- [ ] Cashback can only be requested online.
> **Explanation:** Cashback can be requested with debit and some credit cards, whereas a cash advance is a credit card feature generally involving higher fees and interest rates.
### Which system facilitates cashback transactions at retail stores?
- [ ] Automated Teller Machine (ATM)
- [x] Electronic Funds Transfer at Point of Sale (EFTPOS)
- [ ] Online Bank Transfer
- [ ] Bank Wire Transfer
> **Explanation:** Under Electronic Funds Transfer at Point of Sale (EFTPOS), retailers can provide cashback tied directly to the transaction.
### Can cashback amounts exceed the purchase total?
- [ ] Always
- [ ] Never
- [x] Sometimes, within the policy limits of the retailer
- [ ] Only on weekends
> **Explanation:** Cashback amounts are subject to retailer’s policy limits and may sometimes exceed the purchase total within the set limits.
### How is cashback treated if requested with a credit card?
- [ ] As an overdraft
- [x] Added to the credit balance
- [ ] As a reward point
- [ ] As an unapproved transaction
> **Explanation:** When requested with a credit card, the cashback amount is simply added to the card's monthly balance.
### Which type of purchases usually restrict cashback?
- [ ] Groceries
- [ ] Fuel
- [x] Large electronic gadgets
- [ ] Books
> **Explanation:** Large electronic gadgets or high-value items may often have restrictions on cashback due to retailer policies.
### What impacts the availability of cashback at a specific retailer?
- [ ] Only the amount in stock items
- [ ] The color of items
- [x] Retailer’s policy and transaction system
- [ ] Discounts on items
> **Explanation:** Availability of cashback largely depends on the retailer's policy, their point-of-sale system capabilities and specific transaction rules.
### Is cashback considered a business expense for sellers?
- [ ] Always, as it involves giving away cash
- [ ] Not at all since it is reimbursed
- [x] It aligns with cash management protocols and services
- [ ] It is always factored in product pricing
> **Explanation:** For sellers, cashback aligns with providing additional customer service and involves managing cash transactions efficiently within their systems.
Thank you for deep diving into the sophisticated overview of cashback in the accounting lexicon. Tackle our quizzes to refine your understanding and edge out in financial competency!
