Accurate Recording of Purchases With Business Credit Card

The system used by a small business owner to record credit card purchases is likely to determine if the entrepreneur is efficiently tracking expenditures or living in a hoarder’s house of numbers and receipts. A credit card dedicated solely to business use is the definitive solution. But many self-employed individuals utilize personal cards with only some business charges.

Accounting software permits establishing a credit card account for the business. Charges are recorded like checks drawn on the bank account. Each charge entry automatically creates a liability on the company Balance Sheet for credit card payable. This credit card liability is therefore owed by the business. Be sure to categorize personal expenditures on the card as owner distributions.

Reducing the incidence of errors is accomplished by assuring that payment of the credit card bill applies to the liability account. Simply writing a check for an expense category called “credit card payments” is incorrect. The expenses are already recorded when each credit card charge is entered. Enter all credit card charges so the sum appears in the Balance Sheet liability account for credit card payable. Then apply payments sent to the credit card issuer to that liability account.

If you use a credit card for some business purchases but mostly personal expenses, skip creating a credit card liability account for the business. Instead, a best practice is having the business reimburse you and record the expense categories being reimbursed as if the company had paid them directly. Then pay the credit card bill with personal funds.

Advertisements
%d bloggers like this: