Dustin Wheeler

Dustin Wheeler
Dustin is a technology-driven CPA in Orem, Utah.

Social Media

Follow me on Twitter

Accounting for Credit Card Transactions in QuickBooks: What May Seem Easier is Harder

I have observed people using two methods of handling credit card accounts in QuickBooks:

  1. Recording individual credit card charges in a liability account (set up in the chart of accounts as the Credit Card type). Payments decrease the liability balance.
  2. Recording only the payments for the credit card and allocating the charges among many different expense categories (using splits in the write checks screen as shown below). No liability account exists for the credit card.

On rare occasions, I have seen other techniques, such as running the credit card expenses through accounts payable, but the two listed above are the most common.

I have asked those using method #2 why they chose to record credit card transactions that way, and the answer is usually that they were unaware of any other way of doing it or that they thought it would be easier than method #1. Some say, “Why should I enter every single credit card charge when I can account for all of the charges in one transaction?”

I concede that method #2 works okay when credit cards are paid in full every month, because each payment can be traced to the sum of the transactions on the statement. However, when cash suddenly becomes tight and the company can’t pay the credit card bill in full, you have to allocate, for example, $1,697.45 of credit card charges to a $200 payment. For each partial payment after that, you have to keep track of what transactions you’ve recorded so far and allocate a new set of expenses. This quickly becomes an accounting nightmare that you will experience every time you enter a payment!

There is a second problem with method #2. How is your CPA supposed to know what the year-end balance is on your credit card? It won’t show up in your QuickBooks file. You’ll have to give your CPA the credit card statements and help him or her classify the unrecorded transactions.

I strongly encourage method #1. It handles partial payments of credit card balances painlessly. It makes your QuickBooks file easier for your CPA to work with. Also, if you enter the transactions from your credit card receipts, you will always know how much you owe on your credit card by looking at the account in QuickBooks and you can reconcile the account to make sure all of the charges were processed correctly.

It might seem tedious to enter every credit card charge, but it will probably save you time later!

If you are a client (or a potential client) and want to improve your recording of credit card transactions, do not hesitate to contact me.

(Note: If you still have your heart set on recording the expenses from a credit card statement in one big split transaction in QuickBooks, my recommendation is to set up the credit card account in QuickBooks, as in method #1, and enter the big split transaction from the statement using the “Enter Credit Card Charges” window instead of the “Write Checks” window)

55 comments to Accounting for Credit Card Transactions in QuickBooks: What May Seem Easier is Harder

  • Mic

    I didn’t set up a credit card account when starting our books many years ago, instead entering credit card charges through accts payable. Can I extract the credit card entries from the whole AP and move them to a newly created credit card acct so I can reconcile the cc account? (Obviously, it’s way out of whack!). I apologize if this is a dummy question, but I’m not an accounting person, just the person that’s in charge of books (no wonder we’re going out of business).

    Thank you for any help.

  • JB

    I need to enter CC transactions for 2014. I have a series of partial payments toward balance that cleared before the year end and the balance on the card went back to zero in late December. I was advised by a CPA to use method #2. Is it possible to enter partial payments as fractions of full payment? I do not like this idea but it is all I can think of to avoid the “nightmare scenario” mentioned above. What if I always include 100% of the interest payment and divide up the expenses according to the remainder of the payment left over?

  • Eric

    I used method # 2 only because it is too time consuming to input individual transaction when you have over a hundred of transaction on the credit card statement. Download credit card directly from the bank will be a solution to avoid input, however you still have to assign expenses account individually. Also, I do not think having numerous vendors creates credit card transaction is meaningful. I prefer to download the credit card transactions into Excel and assign expenses AC using filter function and then use consolidated data function/pivot table to summarize the amount for each expense account. Most of the time I paid in full so it will be only a few expensese accounts I need to book when issue a check to AE card. In case partial payment is needed, you may use journal entry to record the total Debit Expense Credit AP then issue check for the partial payment to reduce the balance in AP.

    At the end, input hundred of credit card charges in QuickBooks is too time consuming even you download from the bank. I found assigning expenses account individually in credit card register is too time consuming. I recommend using Excel to assign expense accounts and summarize for booking is the most effective way. I hope someone has better suggestion.

  • Sari

    My year end is August 31st. My Credit card statement goes until Sept 21. My bookeeper somehow split this last year so that I could reconcile twice for one statement. I don’t have her help this year, so I am trying to figure this one out on my own. I know that she divided the statement, so that the ending balance was actually everything added up to Aug 31. However when I go to reconcile is it looking for the payment. The payment however was made on Sept 8th. What am I missing?

  • Julie D

    I just started QuickBooks. If the credit card purchases was done in December 2014 do I enter the date of purchase what is on the statement? Do I enter the payment in the month of January 2015?

Leave a Reply




You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>