credit card bookkeeping
dontworryaboutit
Member Posts: 20
Im an s-corp doing cash basis accounting
Is it allowed to simply create a: "journal transaction" and debit expenses and credit owners contribution for a credit card purchase (i pay the card off at a later date with personal funds)
And then have the S-corp reimburse me and simply debit owners contribution and credit cash?
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Comments
@dontworryaboutit,
You can, however, I would recommend a credit card dedicated to business and paid for with business funds.
@dontworryaboutit
I don't see a real issue in what you are doing, however I would recommend an alternative. I would generally make a "Credit card clearing" liability account to post the original credit to and net out the payment but since you are cash basis I would make it as an equity account.
If business expense
Step 1: purchase
Debit expense
Credit credit card clearing
Step 2a: if payment with personal funds
Debit credit card clearing
Credit owner's contributions
Step 2b: if payment with business funds
Debit credit card clearing
Credit cash
Step 3: end of period if there is still a balance, close it out to owner's contribution.
The reason why I would make that account is because one of the few accounts bankers look are you equity accounts (contributions/draws). The small activity for each transaction on your credit card purchases is bound to confuse bankers or make them raise questions. Moreover, if you happen to pay with business funds, now you have to make more messy entries.
Using a credit card clearing account would help to avoid any confusion. This is because you make every little transaction entry in this account and at the end of the month you know exactly what portion was your business credit card purchase amount. When you make the payment with personal funds is when you make the owner contribution and this tracks that activity clearly. Plus, it would help make the split between personal vs business very clear without having to get a different credit card.
Hope this helps,
Enrique
Financial consultant
enriquefavaro@protonmail.com