Credit Cards & Accounts Payable Procedure l BuildYourNumbers.com

Credit Card Transactions: The Mini-Accounts Payable System (2340/Level 1)

Diane Gilson: Hi and welcome. This is Diane Gilson with Info Plus Accounting.

The topic that we’re going to be talking about today is ‘Credit Card Transactions:  Introducing the Mini-Accounts Payable System‘ and before we get started I do want to mention that this is a Bronze Level class – so it’s kind of designed for people who maybe haven’t been using the credit card system in QuickBooks to the fullest extent.

So, credit cards: they [provide] more ways to spend and record expenditures in the system:

• We want to know “what’s the credit card feature all about in QuickBooks”?  [It’s] something that many people have not taken advantage of
• We’re going to be talking about, what I call the “olden ways”.  People talk about the “olden days”, well there are “olden ways” of doing things – and why they’re just really not so hot. There are better ways of doing things.
• We’ll talk about setting up your credit card accounts and
• Making entries – what’s different about entries with the credit card system?
• We’ll also talk about reconciling and some online services that are related.

Let’s flip over into our PDF.  I call the credit card system a mini-accounts payable system. What’s the credit card feature about? This is a unique way to get individual charge card transactions recorded, on the right date, to the right vendor, so that you can carry a fluctuating balance on this loan.  It’s like a little mini-loan or a mini-accounts payable.  So you can keep track of, and carry, that fluctuating balance.  And so that you can track the balances owed by including, and accumulating, interest charges as they come at you. So each month, if you’re carrying a balance, you’re probably going to be seeing some interest charges come in (unless you’re on a special zero rate for a certain period of time).

The credit card feature is going to let you easily reconcile against credit card company statements, so we know that the amount that we have in the system is correct. You’ll be able to see exactly what you owe at any given time, assuming you’re keeping up with credit card transactions. Your purchases are not going to appear in your accounts payable aging summaries – we’re going to talk a little bit more about that.  And the accounts payable will show the current payments that are due on your credit cards – if you choose to enter the amount that you are going to pay on your credit card into a bill. So really what happens is that, when you enter a bill, your credit card balance total gets reduced and your accounts payable increases so it’s just kind of a flip between the credit cards and the accounts payable.

What NOT to do:
Now, what I hear from people is “I pay off our credit card every month, why should I bother with the credit card feature?” Well, if you make a payment to a credit card company via a bill or a check, even if you’re paying the whole thing off, you’re still missing some things. What happens is you don’t get the correct date of individual transactions on that bill or the check. OK, now as a note, credit card transactions are as good as cash payments, for tax purposes. So if you put something on a charge card it’s immediately deductible, even if you haven’t [yet] paid the credit card company for it. So you want to get those things on the books right away.  The other good reason to get the charges onto the books is to give you better, and more timely, job cost reports, so you can see exactly what’s going on with those jobs if you’re running credit card charges through there.

It’s also going to show the payment to a credit card company [as the vendor name].  With a bill or a check, it’s not going to show the correct vendor.  So when you’re entering a bill or writing a check, the costs are going on that [bill or check] and you’re taking it straight out to Visa, Mastercard, Amex.  When you look at a job cost report, all you’re going to see is “Oh, who did I pay this to? Oh, I paid Amex.”  Well maybe it was to a local lumber company, maybe it was to a plumbing company, it could have been to most anybody.  Although you could indicate the vendor in the description field – let’s say you’re paying off 30 things on that one payment and you can do the splits at the bottom and you can indicate the vendor in the description field – that’s [still] time consuming, and often you need to use that field for some other information.  So, just because you pay that [credit card off] on a monthly basis, or you put the bill in on a monthly basis, you’re still losing a lot of valuable information that you would actually get if you were entering the information on [the QuickBooks] credit card entry form.

Then somebody says “Well, I don’t pay off my credit card every month, but I can figure out what I’m paying for when I write the check.  Won’t that work?”  Well, in addition to the drawbacks that we talked about above, it can get really confusing to expense the correct payment way after the fact.  So I put in an example where you bought a computer and you’re paying for it over a 6-month time period…