A credit card can be a useful financial tool for a small business or the self-employed. Credit cards are more convenient than checks, can allow you to make purchases (and receive product) faster, and can ease cash flow during the month. While I caution owners against carrying a high-interest balance, I think there’s a great value to being able to utilize the convenient liquidity of it.
QuickBooks has a special process for entering credit card transactions. If your bank has formatted a Bank Feeds download, this can be set up to enter the transactions for you. Today however, we will look at the manually entry. This will also allow you to see the process of how and where things go.
Chart of Accounts: If you are adding a credit card for the first time, we will need add a new account for the credit card balance to the chart of accounts. Go to List> Chart of Accounts> and press Ctrl+N.
Here click the credit card radio button and Continue.
The “Edir Account” window will pop up. For the name, I use the bank name followed by the last 4 digits of the card. This helps to identify purchases are recorded to the correct card especially if there are multiple cards. In the example we will follow, the card name is Amex CC – 1000.
Recording Charges: To record a purchase, go to Banking> Enter Credit Card Charges. Here, record the transaction data the same way you would for a check: Name of Vendor, Date, Amount, Invoice or order number, and apply to the correct expense accounts. Save this transaction and move on to record the next transaction.
Receipts: While credit cards can be a big convenience for a business, they can also be used for theft. It is important to match all transactions to a receipt. Employee’s purchase receipts should be reviewed and approved by someone other than the card user. The risk is that someone went for supplies but added personal materials or a $50 gift card to the purchase. Without the receipt, it just shows he bought $887.63 in supplies from Lowe’s. Once an employee steals in this way and gets away with it, the likelihood of occurrence increases. Even if you, the owner, are the only user, you will want to save all receipts in case of an audit.
Paying the Statement: QuickBooks has a feature that when you complete reconciling the statement, it prompts you to create the payment. I tend to close out the pop-up window without entering the check, since I may not be ready to send yet or may not be sure of the amount to be paid. Instead, once I make the payment online (or you can mail a check), I go back and record the transaction.
To record the credit card payment, go to Banking> Write Check. Enter the payee (which may include setting up a new vendor if it’s a new card). Enter the payment date and amount. For the Account line, use the credit card liability we created above. Mine in the example is called Amex CC – 1000. Save & Close.
Recording all your purchases and payments will help maintain accurate financial records and maintain a quick way to see what you owe.
Employee Purchases: I notice a trend when hourly employees run to the store to pick something up with a company or owner’s credit card. There is often the inclusion of a soda or energy drink on the receipt. Many owners do not have an issue with this and consider it a cost of convenience. The employees have rarely been reimbursed for gas or mileage. So, it seems to balance out and allowing such is a way to express ‘Thanks’. This practice is not the same as someone deceptively adding something to the purchase and then losing or forgetting the receipt.
In the end, as an owner, you’ll need to decide what’s are acceptable practices for your business and put safeguards in place to prevent theft and fraud. Reviewing and recording credit card transactions is a great way to ensure your policies are being followed.