How to record a merchant cash advance on financial statements

Key Takeaways

MCAs must be recorded as liabilities, not income, with repayments reducing the liability and fees recorded as financing expenses to ensure accurate financial reporting.
Misclassifying MCA transactions can distort profitability, affect tax reporting, and impact future funding eligibility—common mistakes include treating the advance as revenue or failing to separate costs.
Best practice involves regular reconciliation, detailed documentation, and using software or professionals familiar with MCA structures to keep your balance sheet and P&L clean and compliant.

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Page written by Ashlyn Brooks. Last reviewed on May 13, 2025. Next review due October 1, 2026.

Merchant cash advances (MCAs) provide fast access to capital, but they bring unique accounting challenges. Unlike traditional loans, MCAs don’t follow standard interest structures, and repayments are typically deducted daily or weekly from sales, making them tricky to track correctly on your books.

At Swoop, we understand how important clean, accurate financial reporting is—not just for tax time, but for managing cash flow, planning growth, and securing future funding. This guide walks you through how to record a merchant cash advance on financial statements, step-by-step.

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What is a Merchant Cash Advance (MCA)?

An MCA is not a traditional business loan. Instead, it’s an advance based on your future sales, usually repaid through a fixed percentage of your daily credit or debit card revenue. The provider gives you a lump sum upfront, and you repay more than you received, often using a factor rate rather than a standard interest rate.

Example: You receive $40,000 today and agree to repay $52,000 through daily sales deductions. That $12,000 difference is the cost of the advance, not interest in the traditional sense.

How to record the receipt of an MCA

When you receive MCA funds, it’s critical to record the amount correctly in your books to avoid misrepresenting revenue or liabilities.

Recording the MCA as a liability

The advance is not income, it’s a liability.

Debit: Cash or Bank Account
Credit: Merchant Cash Advance Payable (liability account)

This reflects that you’ve received funds you are obligated to repay.

Reflecting the advances in the balance sheet

Once recorded, the MCA should appear as a short-term liability on your balance sheet (unless structured to extend over 12 months, in which case a portion may be long-term). This liability will reduce as repayments are made.

How to account for MCA fees and interest

Although MCAs don’t have traditional interest, they come with fees and financing costs that must be captured separately for accurate financial reporting.

Recording fees as financing expenses

The cost difference between what you receive and what you repay (e.g., $12,000 on a $40,000 advance) should be logged as a financing expense.

Record these fees in a separate account, such as “MCA Financing Costs”, under your income statement’s operating expenses.

This allows you to deduct eligible fees at tax time and keeps them separate from operating or product costs.

How to record MCA repayments

Repayments typically come from daily or weekly sales deductions, making tracking slightly more complex than with a standard loan.

Reducing the liability and reflecting repayments

Each repayment reduces your liability on the balance sheet.

For each repayment:

Debit: Merchant Cash Advance Payable (liability)
Credit: Bank Account (or Sales Revenue, if repayments are directly withheld at the processor level)

If fees are deducted upfront or baked into repayments, record the fee portion separately as a financing cost.

Tip: If your MCA provider doesn’t break out principal vs. fees, ask for a repayment schedule. You’ll need this for proper accounting.

Impact of MCAs on profit and loss statements

Understanding the effect of MCA fees on operating expenses

Because the cash advance itself is not income and repayments are not expenses, the main impact to your profit and loss (P&L) comes from the financing fees.

These costs will appear under Financing Expenses or a custom line like “MCA Costs”, depending on how your chart of accounts is set up.

Key takeaway:
The actual repayments don’t affect your P&L, but the cost of the MCA does. Misclassifying this can distort your profitability metrics.

Managing long-term MCAs and interest charges

Some MCAs stretch over many months, making it important to properly track balances over time.

Monitoring the balance and recording the remaining debt

Use a liability sub-ledger or loan tracking schedule to:

Monitor the remaining balance
Separate principal vs. costs
Ensure your repayments reduce the correct amount on the balance sheet

This is especially important if you’re considering refinancing or securing additional funding, as lenders will review your liability details closely.

Common mistakes when recording MCAs

Treating the advance as income or failing to separate fees

Two common errors:

Recording the advance as revenue — inflates income and distorts tax reporting.
Not isolating financing costs — hides the true cost of capital and complicates deductions.

These errors can impact everything from tax liabilities to funding eligibility, so it’s worth reviewing MCA entries monthly.

Best practices for accurate MCA accounting

Because merchant cash advances don’t follow traditional loan structures, keeping your records clean and consistent is essential, not just for tax season, but also for tracking cash flow, securing future funding, and maintaining lender trust.

Here are the best practices to help you stay organized and compliant:

Work with an accountant who understands MCA structures

MCAs aren’t always well understood by generalist bookkeepers. Choose a tax advisor or accountant who has experience with alternative financing. They’ll help you:

Classify the advance properly as a liability
Track repayments accurately over time
Maximize eligible deductions on fees and financing costs

Use accounting software that supports liability tracking

Whether you’re using QuickBooks, Xero, or another platform, make sure your chart of accounts is set up to separate:

MCA Payable (liability account): To track your remaining balance
MCA Financing Fees (expense account): To record costs separate from operating expenses or repayments

This keeps your profit and loss statement accurate and your balance sheet reflective of current debt obligations.

Keep thorough documentation

Don’t rely on bank statements alone. For each MCA, keep:

The original contract
Fee and repayment breakdowns
Daily or weekly withdrawal records
A running balance schedule (showing what’s been repaid vs. what remains)

This is especially useful if you’re ever audited—or need to refinance.

Reconcile frequently

Because MCAs are repaid through small, frequent deductions, waiting until month-end can lead to missed or misclassified entries.

Reconcile bank withdrawals against your repayment schedule weekly or bi-weekly
Match your principal and fee breakdowns to your accounting entries
Flag discrepancies early to avoid cumulative errors

Pro tip:
Ask your MCA provider for a full repayment or amortization schedule up front. This breakdown of principal vs. fees saves significant time during monthly closes and year-end tax prep.

Get started with Swoop

Whether you’re already managing a merchant cash advance or considering one, understanding how to record it accurately is essential for protecting your business. Clean financial statements help with cash flow planning, tax preparation, and future loan approvals.

At Swoop, we help you compare funding options that match your goals—and we’ll also help you understand what each option means for your books.

Check available business loans today and explore transparent, growth-focused funding that fits both your finances and your accounting.

Written by

Ashlyn Brooks

Ashlyn is a personal finance writer with experience in business and consumer taxes, retirement, and financial services to name a few. She has been published in USA Today, Kiplinger and Investopedia.

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