Dustin Wheeler

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

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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)

51 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.

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