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.
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.
- “Principles of Accounting”; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991
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