Manyatimes, we use credit cards to make payments, but ever wondered how to account for credit card transactions?
The transaction basically is, we use credit given by bank for making the payment, during the entire month, and then we repay the bank the amount due once a month by the due date. It’s no different than a small loan account.
As a best practice, one should keep personal and business credit card separate. Below are the simple steps for recording business credit card transactions.
Create an A/c named ‘Credit Card’ under A/c Group ‘Unsecured Loans’.
Then while booking expenses borne through credit card, record expenses like usual, just selecting the ‘credit card’ account while making payment, instead of bank A/c.
Then when we pay the credit card bill (which is like repayment of loan), through ‘Make Payment’ under expenses. Select ‘credit card’ under ‘Pay to’ Field, and ‘Bank’ under ‘Pay from’.
If there is interest payable on credit card or some penalties on late payment, the same needs to be recorded separately. Go to ‘Make Payment’ –> Select Pay to- ‘Interest/Penalty on Credit Card’ (grouped under indirect expenses), and in pay from: ‘The Bank A/c’ through which you will make the payment, and record accordingly.