by Kimberly Perkins, Green Apple Resources, 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. You need fuel; you just pull up to the pump, pop your card in, and fill up. You’re in Wal-Mart buying groceries and you see something on sale that your business needs so you throw it in the basket. 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. Then at the end of the cycle you just pay the bill and your job is done. Or is it?
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. It is more difficult if you use that card (and your checkbook) for both personal and business expenses. 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. 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. It is always easier for bookkeeping purposes to use the card exclusively for business if you can. Each month when you receive your statement from the credit card company you should code or categorize each charge item on the statement. Include the finance charge to an account called Interest Expense or Credit Card Fees. 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) Here is an example:
|Meals & Entertainment||75.20|
|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:
|Credit Card Payable||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 accurate and timely.