Recording Credit Card Transactions

by Michelle
(Port Alberni)

Best Practice For Recording Credit Card Expenses

Can anyone explain to me how a credit card transaction should work within your accounting system?

The card currently has a five figure balance.

What is in the system does not match- not even remotely. So, my question is- when you have entered all charges to card as well as interest- what should the end result be?

What you have paid? Or what the balance of the card is?

Hi Michelle,

The best practice for entering credit card expenses is to create a credit card type of account in QuickBooks naming the account BOM Mastercard or CIBC Visa. You get the idea. However only do this if it is a card used strictly (or mainly) for business.

Enter all transactions into QuickBooks line by line. Do not enter lump sum. Once that is done, reconcile the card to the monthly statement just as you would a bank account/statement. You should have receipts for all transactions entered.

If the credit card expenses are on personal cards (or an even mix of business and personal) then create a credit card type of account called "Owed to Owner". The owner should submit an expense report with receipts attached that you enter. When the owner wishes to be reimbursed and/or the funds are available to reimburse, write a cheque in the owner's name (or have the owner do a direct bank transfer to the owner's personal account) with your offsetting entry to "Owed to Owner".

When the G/L does not match the credit card statements, you have to determine which of the above methods was used. It is possible they were only entering the business expenses and not balancing to anything. And how could they if they weren't entering every transaction!

IF they were only entering business expenses, you need to move to the "Owed to Owner" method.

Comments for Recording Credit Card Transactions

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Dec 16, 2014

Credit card bookkeeping has become very tedious
by: Bookman

I have clients that have 3 or 4 business credit cards and purchase everything from morning coffee to airline tickets and hotel rooms and everything in between. This amounts to hundreds of transactions a month. I customarily record the transactions only when the monthly credit card statement is available to me. It has become a bookkeeping nightmare as more and more clients are using credit cards for all their business transactions. Are you finding this to be true?

Dec 18, 2014

Bookman
by: Lake

I do but I prefer that to cash purchases or using personal funds. I do try to educate the small business owner NOT to run personal purchases such as their morning coffee or vacation arrangements through the business accounts. It is much better to take a regular draw (or pay cheque if you are incorporated) and pay for these items from your own personal account.

Having the small business owner run all their business transactions through their credit card leaves me with one problem in general ... getting their paperwork to support their purchases.

The biggest problem I find with all the online accounting software is that many business owners just don't understand that downloading (or doing manual data entry) the bank and credit card transactions is only one small piece to keeping a set of books. They need to take the time to file/attach their itemized receipts.

There is software out that you can purchase to scan and read in the bank and credit card statements but it is expensive. If just an initial purchase of the software was required, I would probably try it even though it is pricy but the product I was looking at also had monthly maintenance fees. That stopped me from making the purchase.

Dec 18, 2014

To Lake
by: Bookman

You're right that the small business owner needs to be educated in "not running personal transactions" through the business account. I tell them till I'm blue in the face. They try initially and then they fall back into bad habits. You're right that the client should be attaching paperwork to back up all their business charges.

I think there is a misconception that just because a charge appears on a business credit card that the IRS will be satisfied and allow the business deduction. However, that is not the case; all credit card charges should be backed up with a receipt, an invoice from the merchant or a printed statement from an online merchant clearly indicating the item(s) or service purchased. Going forward I will require all my clients to do this. I think this will cut down on the bad habit of charging personal items on the business credit card like morning coffee and breakfast at the neighborhood diner!

By the way, what is the name of the software that you mentioned?

Dec 22, 2014

Bookman
by: Lake

For those small business owners that don't seem to be on a learning curve regarding keeping business and personal expenses separate ... it might be interesting to have a separate line on your invoice charging for the processing of personal items ... because really they are not related to earning business income and processing them is not technically a deductible business expense.

This visual reminder also hits their pocket book (by losing the deduction) and may assist them in sticking to better habits.

The software I was interested in was called ScanWriter.

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