Answers

How is a merchant cash advance recorded in accounting? A plain answer.

Q: How is a merchant cash advance recorded in accounting?

Commonly as a liability when received, with each remittance reducing the balance and the cost recognized as a financing expense over the expected repayment period. The exact treatment depends on the agreement and your accounting standards, so confirm it with your accountant. This is general information.

Commonly as a liability when received, with remittances reducing the balance and the cost recognized as a financing expense. The correct treatment depends on the agreement and accounting standards your business uses, so confirm with your accountant. This is general information, not accounting advice.

Apply Now Do I Qualify?

✓ Checking what you qualify for does not affect your credit score.

How is a merchant cash advance recorded in accounting?

Key facts

Record the advance as a liability, not as revenue
Remittances reduce the liability
Spread the cost over the expected repayment period
Record fees deducted at funding separately

A common approach

When the advance is deposited, record cash and a liability for the amount to be remitted, with the difference as a deferred financing cost, or record the net amount as a liability and accrue the cost over time.
As remittances are collected, reduce the liability.
Recognize the cost over the expected remittance period.
Record any fee deducted at funding separately.

Small businesses using cash-basis bookkeeping may simplify this, but year-end financial statements usually need the liability shown properly.

Why it matters

Accurate statements help future financing applications.
Recording the advance as revenue overstates income and may increase tax.
Banks reviewing your statements will look for it.
It keeps reconciliation requests simple.

Questions for your accountant

How should the cost be recognized and over what period?
Is it deductible, and when?
How should it appear on the balance sheet?
Does it affect any bank covenant?

Where Canadian files usually start

Monthly revenueTypically from around $20,000 a month in deposits for Canadian files. The exact line varies by funder and by file.

Time in businessTypically about 12 months. Newer businesses can be reviewed, but the options narrow.

Account healthLimited low-balance or negative days. Funders read the last few months of bank statements for this.

CreditScores from 500 are considered. A score of 600 or higher opens more options and better offers.

DocumentsA signed application and recent business bank statements, typically the last four months.

Existing advancesFiles with an existing advance can be reviewed, including second position.

If your question is about your own file rather than the general rule, the fastest route to a specific answer is a review. Send a signed application and your last four months of business bank statements, mention this question in a note, and the response will address it directly. You can also call (305) 384-8391 and ask before applying; there is no cost to ask.

Questions owners ask next

What mistakes should you avoid in the books?

The most common error is recording the advance as sales, which overstates revenue and understates debt. Another is expensing each remittance in full, which hides the balance still owed. Both distort the statements a bank will read later.

Keep the agreement, the funding deposit and a remittance log together, and give them to your accountant at year-end. Clean records make renewals and bank applications easier.

Sources and review

Canada Revenue Agency: Keeping records

Reviewed by the Merchant Fund Express team on October 12, 2026. Official pages checked as of that date.

Common questions

Is an MCA income?

No. It is financing, not revenue. Confirm the treatment with your accountant.

Is the cost deductible?

Financing costs are often deductible for businesses; confirm timing and treatment.

Do I need special software?

No. A separate liability account in standard bookkeeping software is enough.