Credit Card Accounting
Clarkey
Member Posts: 16
Hi
I am new to accounting and confused about expenses paid for on a credit card. How do I record that I have paid for the expense on a credit card and then how do I record that I have paid the credit card bill? I really need a step by step walkthrough!
Many thanks for any help!
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@Clarkey,
That is going to depend on whether the business account was used to pay the credit card bill or you personally paid for it. Let us know.
I have both scenarios. Mainly a business credit card paying for a business expense but sometimes I pay for a business expense on a personal credit card and then I need to account for it in the business.
@Clarkey,
For expenses on a personal credit card that is for business, you would create a journal entry (Accounting/Transactions top right More). Debit the appropriate expense category and credit owners contribution.
For items on a business credit card that is not importing automatically, you have two options to enter the expenses. Either case be sure you have a credit card liability account set up in the Chart of Accounts. One is to manually enter each transaction. Go to Accounting/Transactions and add expense. Complete the details such as description, date, amount and category. Change the account box from cash on hand to credit card and save. Repeat for all transactions including payments. The payment would be add income rather than add expense.
The second method is to download the statement into an acceptable format such as csv. Then import the transactions and categorize. Go to Accounting/Transactions/More import bank statement. Payments from your checking account to the credit card should be categorized as a transfer to bank/credit card. It should find the matching payment from the credit card transactions.
I'm available for hire if you need further assistance at a reasonable hourly rate
many thanks for you help.
I just want to check I have this right. I am manually entering to the Business account. I have a Bank Account set up (asset account) and a Credit Card set up(liability). For example, I spend 4 payments in a month on the credit card that gets added as 4 individual expenses against different categories and adds up to £100. My balance on the credit account is now showing in the top left of the screen as £100.
At the end of the month, I pay a one-off payment of £100 from my Bank account to cover the 4 payments made on the credit card. I enter this single transaction as follows in Wave:
Date: 31/11/2019
Description: Payment to Credit Card
Amount:£100
Account: Bank Account
WITHDRAWAL
Under the Category, I select the option Transfer to Bank, Credit card or loan.
Then I pick from the account list My Credit Card and save.
I then end up with two new transaction lines as follows:
1. Payment to Credit Card - Withdrawal - Account Bank Account - Category Transfer to Credit Card
2. Created Transfer - Deposit - Account Credit Card - Category Transfer from Bank Account
My balance on the Credit Card at the top of the screen is now reading £0.
Have I done it correctly?
Thanks
@Clarkey,
You got it. Things would a little different if and when you decide to attach your bank or import.
@Mikeg I have a followup question here.
I'm having a hard time wrapping my head around some basics I think...
Similar scenario I'll try and be specific too.
Purchased new laptop on personal Apple Card to receive a 12 month interest free payment plan on it. I do have a business credit card but this offer is not available through Chase so I went this route.
I paid sales tax on the initial transaction and just now made my first payment on that credit card. Unfortunately because, Life, there is a mix of stuff on that apple card but I only account for business stuff using Waveapps.
The part I don't understand is crediting the owners account after making the debit to the appropriate category. I don't know if it makes a difference, but anytime I pay myself or make a personal transaction I categorise it as owner equity withdrawal. I've never credited that account. Here's why it confuses me:
Laptop: $2499 (payment over 12 months)
Jan 3 - Desc: Apple MBP - Acc: Owner Investment/Drawings - Category: Equipment (Asset account) - $2705.17 (in black as a withdrawal with sales tax of 206.17 recorded)
That's how I recorded the purchase. So do I make a second journal entry for the entire amount as a credit (owner investment) or do I create 'owner investments' with each $200 approx payment?
Transaction 1 being the initial sales tax payment and transaction 2 being my first installment.
I know I'm over thinking it, but I was hoping that with a really specific example, you might be able to help me unlock that understanding. I have searched far and wide but the problem is I don't really know what I'm asking... stuck in the mud, so to speak.
Please help.
I think I'm using the term Journal entry wrong. I just want to know how to perfectly record this so I can understand. THanks
when I said, 'this is how I recorded my purchase' I should have clarified. I added an expense manually. not a journal entry.
@kylozen,
Since you created a transaction for the laptop you would assign the "Account" on the transaction page to be Owner Investment. This creates the credit and the dollar amount creates the debit which went to Equipment. If the business makes the monthly payment, then you categorize to Owner Investment/Drawing. This because you already recorded the purchase. It just happens that a liability is what funded the purchase.
A debit to assets and expenses increases them
A credit to liabilities/equity/income increases them
Reversing has the opposite effect.
Logic behind what you recorded
Debit to assets (increase) Business now owns a spiffy laptop
Credit to equity (increase) Owner paid for or will pay
Now business pays installments
Debit Owner Drawing (decreases equity)
Credit Cash (decreases cash)
The asset has already been recorded and now being paid for, No different than if the business had originally purchased. Instead of a debit to equity it would be a liability. Both which, are decreases. Debt repayments are not deductions (expenses)
A little more logic on the Transaction page
The transaction page has both debits and credits. One is the "Account" column and the second "Amount" column. They are opposite of each other. Meaning Amount in black is a debit the Account is a credit. Amount in green is a credit and the Account is a debit.
Examples - Amount is black for office supplies and Account is Checking
From above Black is a debit of expense (increases expenses). The Account was opposite so it is a credit to Checking which is an asset and decreases.
Hope this provides some insight.