Credit cards are not an expense per se (except membership fees and finance charges, which are usually applied to other expense accounts), but merely a vehicle whereby expenses are incurred (like a check). A charge on a credit card should be applied to the account for which the product or service was paid with the credit card.

By making a payment to your credit-card vendor (e.g., American Express or Diner’s Club) and lumping credit-card charges together as one expense, three problems are created.

1) Your reports are not accurate because the true expense is not entered.

2) Your record-keeping is inaccurate because the true vendor’s name from whom the product or service was purchased has not been entered. Therefore, you lose the ability to generate correct vendor reports and track warranty information.

3) You will not be able to reconcile your credit-card statement to verify accuracy.

In the Profit and Loss report below, we see a credit-card expense amount of $400.00.

The credit-card expense appears on the Profit and Loss report because payments to credit-card vendors have been applied to a credit-card expense account in the Chart of Accounts.

Your credit-card accounts should appear on your Chart of Accounts as credit-card liabilities. In order to accomplish this, you should create a new credit-card liability account for each credit-card vendor and reapply the credit-card payments to their respective credit-card accounts.

Procedure:

1) Generate a Profit and Loss report for the current fiscal year.

2) QuickZoom into the "Credit-card expense" account transactions in your Profit and Loss report. Refer to page 14 for the procedure to QuickZoom and edit transactions. You can also see the detail by doing a QuickReport in your Chart of Accounts. (Make sure you select the correct date range.)

3) Once again, you should QuickZoom into each payment. Your check or bill payment will open up like this.

4) Reapply your payment to the correct credit-card liability account.

5) Working from the first credit-card statement that was paid this fiscal year, you should enter each credit-card transaction as if it were a check.

6) Open the "Banking" menu by clicking on the menu bar with your mouse.

7) Click on "Enter Credit Card Charges".

8) If the credit-card name does not appear in the "Credit Card" field, select the name of the credit-card account from the drop-down list.

9) Enter all the purchase information into the credit-card charge, just as you would for a check.

10) Click "Save & Close " to record the transaction.

Your transaction appears in the credit-card register. (You could also enter the transaction by typing the information directly into the register.) You will notice that the payments to the credit-card account reduce the balance of the credit-card charges in the credit-card register.

If you review your Expense Account report you will notice that your transaction is posted to the correct expense account.

11) When you have entered all the credit-card charges, you need to verify the accuracy of your information by reconciling the credit-card account. Open the "Banking" menu by clicking on the menu bar with your mouse.

12) Click on "Reconcile".

13) Reconcile your credit-card account with your credit-card statement, just as you would reconcile your check register.

By entering each credit-card transaction individually and then reconciling the credit-card account, you will enjoy the benefit of accurate records and reports.