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A Right Way and A Wrong Way to Enter Credit Card Purchases

Rarely do we find credit card activity entered properly in QuickBooks.

Usually we see credit card purchases entered into QuickBooks when the card is paid. The credit card payment is painstakingly split out and manually entered line-by-line following the purchase detail on the credit card statement.

Problems with This Approach

This approach creates several problems:

  1. Purchases are recorded in the wrong month. They are entered as of the date the credit card bill is paid, not the date of the actual purchase.
  2. Purchases bear the wrong vendor name. They are all recorded to the vendor name for the credit card, not the actual vendor name.
  3. The liability for the amount owed to the credit card bank is never recorded on the books.
  4. The manual process to enter credit card payments split out by all the individual purchases is time consuming and error prone.

These problems have important ramifications:

  1. Your financial statements are missing important information.
  2. Underlying transaction detail is missing from your books, so you lose transparency and the ability to research transactions.
  3. Your books are not prepared according to Generally Accepted Accounting Principles, meaning they are not audit-ready.

A Better Way to Enter Credit Card Activity

The good news is there is a better way to enter credit card activity that solves all of the above problems!

QuickBooks Desktop and QuickBooks Online come with a special kind of liability account called a credit card liability account. Once you create a credit card liability account, you can enter each card purchase with the proper vendor name and date. The purchase entries will reflect in the liability owed on the credit card.

A Better Way Example

For example, say you use the organization’s credit card to buy office supplies. The entry in QuickBooks would have the following effects:

  1. Increase the account for office supplies expense by $25.
  2. Increase the credit card liability account by $25.

The above entry in QuickBooks would also bear the proper purchase date (instead of the card payment date) and the name of the office supplies store (instead of the credit card bank name).

Now Automate It

Here is even better news – it’s easy to use technology to automate much of the process of entering credit card transactions. In QuickBooks Online, you can link your credit card to online banking and automatically download credit card purchases to the credit card liability account. Then you can set up rules to help with coding, or even automate the posting of certain transactions into your books.

In QuickBooks Desktop software you may be able to set up a similar “direct connect” download. We’ve found American Express downloads directly into the desktop software quite nicely. For other credit cards, you may need to export the transactions to a QuickBooks file and then import those transactions into your QuickBooks software. It’s not a hard process, and can definitely save you a ton of work over manually entering transactions.

Try It You’ll Like It!

Imagine how much better your financial information will be if you enter credit card transactions the right way. You’ll be able to see the credit card liability on your balance sheet report. Expenses from card purchases will be reflected in your profit and loss report. You’ll capture the vendor name and date for each transaction. And as a bonus, with technology you can cut loads of work from your data entry process.

What’s not to like?

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