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Business owners often use credit cards to pay some of the monthly operating expenses of the business. Credit cards make it easy to purchase items online and in retail stores, and are a much safer way to pay for non-invoiced expenses than keeping cash on hand. If your business uses an accrual-based accounting method, you must record the credit card expenses in the accounting period of the cost. Because credit card statements usually arrive a week to a month after purchases are made, waiting for the statement is not an option.
Create a Credit Card Payable account in the liabilities section of the general ledger.
Record the amount of the expenses from the credit card receipts as increases to the appropriate expense accounts on the general ledger. Generally Accepted Accounting Principles (GAAP) refer to an increase in an expense account as a “debit.” Record the expenses as of the day they were incurred.
Record the total amount of the expenses paid by credit as an increase to the Credit Card Payable account. GAAP refers to an increase in a liability account as a “credit.” Record the expenses as of the day the expense was incurred.
Match the credit card statement, when received, to the recorded receipts to ensure all the amounts were correctly posted by the credit card company.
Record the payment to the credit card company as a decrease to the bank account used for payment and a decrease to the Credit Card Payable account. GAAP refers to a decrease in an asset account as a “credit” and a decrease to a liability account as a “debit.” Payment of the credit card statement will reduce the Credit Card Payable account to zero until more receipts are recorded for the next accounting month.
Tips
If you are not certain how to properly post credit card expenses, consider hiring an accounting professional to help you set up the accounting system and understand the process.
References
- “Principles of Accounting”; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991
- Debt.org. "Revolving Credit: What It Is & How It Works." Accessed May 17, 2020.
- Federal Trade Commission. "Using a Credit Card." Accessed May 17, 2020.
- Experian. "What Are the Different Types of Credit Cards?" Accessed May 17, 2020.
- Experian. "What is a Good Credit Score?" Accessed May 17, 2020.
- Consumer Financial Protection Bureau. "How to Find the Best Credit Card." Accessed May 17, 2020.
- Experian. "What is a Cash Advance?" Accessed May 17, 2020.
- USA.gov. "Credit Cards." Accessed May 17, 2020.
- Experian. "How to Avoid Foreign Transaction Fees." May 17, 2020.
- Experian. "Balance Transfer Credit Cards." Accessed May 17, 2020.
- Experian. "What Is APR and How Does It Affect Me?" Accessed May 17, 2020.
- Experian. "What Is a Rewards Credit Card?" Accessed May 17, 2020.
- Experian. "Going Over the Limit on Your Credit Card." Accessed May 17, 2020.
- Experian. "Will Closing a Credit Card Hurt Your Credit?" Accessed May 17, 2020.
- Federal Trade Commission. "Protecting Against Credit Card Fraud." Accessed May 17, 2020.
Tips
- If you are not certain how to properly post credit card expenses, consider hiring an accounting professional to help you set up the accounting system and understand the process.
Writer Bio
Kaye Morris has over four years of technical writing experience as a curriculum design specialist and is a published fiction author. She has over 20 years of real estate development experience and received her Bachelor of Science in accounting from McNeese State University along with minors in programming and English.