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)

64 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?

  • Alan

    How does method 1 work if you use the cash basis of accounting where the expense should be recorded in the month the credit card payment is made?

  • Janeen Goodin

    I have a random question…I have a client’s wife who has decided that she is going to ‘take charge’ of the AP/AR of the company…and she knows just enough verbage to be dangerous. She knows about the outstanding payables list but doesn’t understand why the credit card balances aren’t on it. I have tried the reasonable explanation that they are on the balance sheet…but she doesn’t know about the balance sheet and is therefore insistent that we do not know what we are doing AND that she wants to see it on the list…which if I reconcile and put it over to a bill, it’s then going to show an outrageous amount of days past due…which we then will have to explain to the bank when we submit financials. So on and so forth…does anyone have thoughts on a very SIMPLISTIC way to explain why this is not correct and should not be done?

    Thanks in advance for anyone that has any suggestions!

  • Phil Hodgens

    I read your excellent article above and have a question. How does one get(maybe with some kind of report?) all the credit card charges which are assigned to an account to show up in the Profit and Loss statement. When i enter them using Method 1,and pay my bill, the transaction shows up in my business account as AP, not individualizing the expense accounts that i need for my Profit & Loss Statement, that i need for my accountant. Any help would be appreciated.

  • Allison Q

    This was a great help! Thank you Dustin!

  • Lisa Terrill

    The other advantage to method #1 is that you can keep track of payments to vendors paid on the credit card.

  • Tyler

    Hi, I have been using method #2, however recently I have run into where I don’t pay the card in full or the statement balance, because of a slow month in business. What would be the best way to switch from method #2 to #1?



  • Allen Schneider

    Can you only use method 1 while using an accrual accounting system? How would entering your credit card transactions individuals by date work if one was using a cash system?

  • Ruth Talbott

    I am entering all credit card charges and and credits (store returns) and the accountant handles the payments. All I am asked to do is enter the charges as the Attorney “never” pays it off monthly. After I enter all charges, I try to save it to the allocate Bank Charge Card Account and I often get “must have an entry on each line”.
    I am allocating in the dropdown immediate after my last transaction. There are 1-2 blank lines between my last line and the totals at the bottom and I have tried to delete them (just in case that is the problem) but it keep adding lines.

  • christina james

    Dustin, this makes sense to me…however, there seems to be some challenges to your article that I would have loved to see answered.

    After these challenges do you still think that your method of splitting payments to credit cards the way to go for proper reporting. As I said, this is the way I used to do, but I too am being challenged by my accountant on this method.

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