Every transaction that occurs in an organization requires the accounting department to consider its financial impact. The accountant needs to record each transaction with a financial impact in the accounting records. Many companies issue debit and credit cards to employees to reduce the expense reimbursements it processes. Instead of reimbursing employees, the company either pays the credit card bill or adjusts its records for the debit transaction. The accounting entries vary depending on whether the employee used a debit or credit card.
Banks issue debit cards to company employees to reduce the number of checks the company needs to print. A debit card transaction removes cash from the company’s bank account at the time the transaction occurs. The employee uses a debit card the same way he uses a credit card when making purchases. The bank receives an electronic notice of the transaction and transfers the money to the vendor to pay for the transaction.
When an employee makes a transaction using the debit card, the company accountant needs to update the financial records. The accountant contacts the employee to determine what the transaction was for. The accountant uses this information to determine which expense account to use in the accounting entry. The accountant increases the expense account and decreases cash.
Banks issue credit cards to company employees to decrease the number of expense reports submitted by employees. A credit card transaction creates a liability for the company requiring the company to pay the bank at the end of the period. The employee uses a credit card when making purchases online, over the phone or in person. The bank receives an electronic notice of the transaction. At the end of the period, the bank adds all of the transactions and sends a bill to the company.
When an employee makes a transaction using the credit card, she keeps her receipt and writes a description of the transaction on the receipt. At the end of the month, she submits all of her receipts to the company accountant. The accountant compares the receipts to the invoice and makes sure all transactions are accounted for. The accountant uses the receipts to determine which expense account to use in the accounting entry. The accountant increases the expense account and decreases cash.