When a business is running low on cash flow, one option for obtaining cash necessary to continue business operations is getting a cash advance from a business credit card. If you take a cash advance from a credit card to make purchases for your business, you need to properly account for the advance on the accounting general ledger. To record the cash advance on the ledger, you must know what product or service will be provided by the funds.
Pay for Purchases Directly With Advanced Cash
Record an increase to the credit card payable account on the accounting general ledger for the entire amount of the cash advance taken.
Record an increase to the appropriate expense account for which the cash advance will be used. For example, if the cash advance will be used to purchase office supplies, increase the office supply expense account by the entire amount of the cash advance.
Make your purchases with the advanced cash and save the receipt.
Deposit any unused cash to your business checking account.
On the accounting general ledger, record an increase to the checking account equal to the amount of the remaining cash advance that was deposited.
Record a decrease to the expense account used in Step 2, by the amount of the unused cash advance that was deposited. This will adjust your expense account to reflect the actual expense of the items purchased.
Depositing Advanced Cash in Business Checking Account
Deposit the entire cash advance into your business checking account.
On the general ledger, record an increase to the checking account by the entire amount deposited.
Record an increase to the credit card payable account by the entire amount deposited.
Cut checks from your checking account as usual to make use of the advanced funds.
Never draw a cash advance on a business credit card for personal purposes.
- “Principles of Accounting”; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991
- Cash image by Greg Carpenter from Fotolia.com