Natural Entrepreneur: Recording Credit Card Expenses On Your Books

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Recording Credit Card Expenses On Your Books

There's more than just paying the bill

by Kimberly Perkins, Books By The Numbers, LLC, NH

If you’re like me, you love to use your business credit card for purchases throughout the month because it makes things easier. Then at the end of the cycle you just pay the bill and your job is done. Or is it?

When you need fuel for your car; you just pull up to the pump, slide your card in, and fill up. When you’re in Wal-Mart buying groceries and you see something on sale that your business needs, you throw it in the basket and pay for this item separately with your card and you’re on your way. It means you don’t have to carry your business check book around and if you don’t happen to have cash, or it’s a large purchase, it doesn’t matter. You’re in business with your card.

The easy part is done. Now you need to post the expenses to your books. Recording credit card purchases on your books can be confusing and messy if you don’t do it right.

First of all, it is more difficult if you use that card (and your checkbook) for both personal and business expenses. Keep your personal and business charges separate whenever possible. It is always easier for bookkeeping purposes to use the card exclusively for business if you can. Each month

Second, you need to categorize your purchases. If you simply record a payment to some account called Miscellaneous Expense or Credit Card Expense your books will be confusing as well as incorrect. Each charge, business and personal, must be broken out separately and posted into the appropriate categories. When you receive your credit card statement, code or categorize each charge item on the statement while the purchases are fresh in your mind.

Using your general journal you should record the activity. (You can do this during the month, as the expenses occur, if you need your books up to date more often than monthly)

Unless you are one of those extremely organized people, the credit card usually has a finance fee each month. If you use your card for both personal and business expenses you should not post the full amount of that fee to your books as a business expense. Include the finance charge to an account called Interest Expense or Credit Card Fees.

Here is an example:

DESCRIPTION	DEBIT	CREDIT
Office	43.78
Meals & Entertainment	75.20
Operating Supplies	64.90
Education	97.00
Personal Draw	50.00
Credit Card Payable		330.88

Credit Card Payable is a liability account on your balance sheet because you owe this money. (It may be called something different, like the name of the card, i.e. American Express) When you make the payment of the credit card, the general journal entry would look like this:

DESCRIPTION	DEBIT	CREDIT
Credit Card Payable		200.00
Cash	200.00

However, since a payment would most likely be coming out of your check register, you would not have to write a general journal entry. The category called Credit Card Payable would simply be coded next to the check and entered via a cash disbursements journal into your computer, or, automatically entered in a “write checks” window if you use computer checks.

The Credit Card Payable account balance should always equal the balance on your credit card statement. Reconcile your credit card statements each month, just as you would your bank statements, and you will always have accurate credit card accounts on your Balance Sheet. If the credit card account on your financial statement does not equal the amount on your card statement, this is a clue that something is amiss in your books.

Using your credit cards for purchases can be extremely convenient and useful as long as the second part of recording those transactions is done accurately and timely.

Kimberly Perkins is principal at Books By The Numbers, LLC. She can be reached by phone at 603-381-1987. Visit their web site at www.booksbythenumbers.com

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