Recording credit card purchases on your books can be confusing and messy if you don’t do it right. This is especially true if you mix personal and business expenses together. It makes no sense to simply record a payment to some account called Miscellaneous Expense or Credit Card Expense. The business and personal charges must be broken out separately and allocated into their appropriate categories. The credit card usually has a finance fee element to it each month. Technically, you should not be able to charge the full amount of that fee as an expense if you have personal use activity mixed in.
It is always best 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. 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 obviously a liability account on your balance sheet because you owe this money. If you were to make a payment on your credit card for $200, the transaction 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 if you use computer checks.
The beauty of this simple method it that the Credit Card Payable account balance should always equal the balance on your credit card statement. In addition, all the charges get allocated into the proper categories in their correct amounts.
5 Comments
Your credit card payment should not more than your expenses. It should acquire 25-30% of your monthly expenses.
Your credit card bill should not be more than 30% or else it’s very difficult you to manage for that particular month.
Sir/Madam,
Requesting assistance on how to Record partial payment with a credit card, then pay credit card statement complete.
01.22.11 Recd Verizon Invoice Dr G/L Exp acct 100.00.
01.22.11 Accounts Payable Cr A/P 100.00.
PAYING INVOICE w credit Card
1.24.11 Debit Accounts Payable Dr A/P 75.00
1.24.11 Credit Expense acct Cr G/L Exp acct 75.00
1.24.11 Balance Dr G/L Exp acct 25.00
CREDIT CARD STATEMENT
1.29.11 What acct do I Charge? Dr G/L ?
1.29.11 Credit Card Payables Cr Cr crd Payables 75.00
PAYMENT to CREDIT CARD STATEMENT
2.05.11 Credit Cash ? Cr Cash 75.00
2.05.11 Credit Card Payables Dr Cr Card Payables 75.00
Please advise.
Jose: In your example, re: PAYING INVOICE is where you go off track. You originally set up a credit to Accounts Payable for 100.00. Next you are paying that with a credit card so you are decreasing (debiting) Accounts Payable for 75.00 and increasing (crediting) 75.00 to Credit Card Payable. When you pay your credit card, you are decreasing (debiting) Credit Card Payable 75.00 and decreasing (crediting) Cash for 75.00. You still have an outstanding balance to Verizon in Accounts Payable of 25.00. Got it?
PS: I have been a CPA since 1969. I think the information in your website is fantastic. It is especially useful to explain accounting and bookkeeping to young people just getting started. Your
explaination of Quickbooks bewares is excellent.
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