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
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!