Recording Expenses: Credit Card Statements vs. Credit Card Transactions

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.

One Entity – Multiple Bank Accounts

New small business owners who are gearing up to get organized and put their best foot forward in a new business venture encounter many daunting tasks in the first few months of business operations. Once settled in, most are ready to dive into an official method of accounting rather than a handwritten check register with an envelope full of receipts to serve as backup for future tax returns. However, some are unfamiliar with the basics of setting up their accounting system and common questions prior to taking on the task are, “What if I have two checking accounts? Do I need to split things up for my tax filings?”

Many business owners opt for two (or more) checking accounts and, perhaps, a savings or reserve account. Reasons for this vary and are the prerogative of the owner. But a common choice is utilizing a second checking account for payroll expenses only.

The business entity may have multiple bank accounts listed as assets on its balance sheet. And all cash transactions will run through one set of financial statements. These transactions will contribute to tax filings under one tax identification number. Therefore, there is no need to “split things up.” One entity is accruing all income and expenses regardless of the number of bank accounts holding funds.

Multiple bank accounts do not equate to a more complicated accounting process nor do they complicate your tax filings. What may seem superfluous for one, may simplify the process for another. The best choice is to fund your business in a way that works efficiently for you.