When handling credit card payments using QuickBooks, small business owners may question the difference between entering a monthly credit card statement as a bill and recording credit card transactions in real time.
Entering a monthly statement as a bill involves creating your credit card provider as a vendor. Upon receipt, the bill is entered under the vendor center pulldown menu using the statement date. The total due is recorded, after which, an option to split expenses is provided (for use with multiple transactions and expenses). Interest charges are also recorded and a payment is scheduled. A full or partial payment can be made however, when entering future bills, the user must be mindful not to enter previous unpaid balances which would result in overpayments.
When recording a bill, if a statement period’s beginning and ending dates fall in the middle of the month, the billing date combines the total charges of two months of activity. Therefore, actual expenses for the calendar month are not reported accurately.
Entering individual transactions as credit card purchases in real time is done throughout the month. Transactions are expensed as of the date of the receipt of purchase. This process is more accurate for month-end financial reporting and allows for monthly statement reconciliations.
Recording your credit card activity as it happens involves creating your credit card account as a credit card in the chart of accounts versus creating it as a vendor in the vendor list. A running balance will show on the balance sheet and will decrease when payments are applied to the credit card account.
In addition to more accurate reporting, a credit card account can be reconciled upon receipt of the monthly statement. This is done in the same manner a bank statement is reconciled by accessing the credit card register and choosing the option to reconcile. Here, interest charges are entered and a payment date is scheduled. Any returns or credits are also confirmed as processed by the vendor.
Either way expenses are recorded and payments are processed. When recording credit card transactions, your best bet is to show your credit card as a credit card on your balance sheet. This provides an accurate snapshot of your financial statements and tracks all monthly activity.
In this author’s opinion if a reconciliation is ever possible, especially if multiple company credit cards issued, choose to do so. A double-check on where your money is going is always in a small business owner’s best interest.