Booking Credit Card Expenses in QuickBooks - the Right Way

By Larry Holmes, CPA, MBT

I frequently find new clients that have trouble handling credit cards in QuickBooks.  I thought the following article might be of help.

Are Credit Cards Expense Accounts?
No.  The most basic mistake that I see is that a business will treat a credit card like an expense account.  It is not an expense account.  It is a liability account because the credit card represents a borrowing of money prior to actual payment.  As a liability account it belongs on the balance sheet rather than on the profit and loss statement.

Buying something with a credit card is paying with borrowed money, and the money is borrowed from the credit card company.  That is why a proper accounting is to handle the credit card in QuickBooks as a liability account.

When Are Expenses Recorded?
The expense is recorded on the “Record Credit Card Charges” screen, in the “Expenses” tab.  When you use the Enter Credit Card Charges screen, you are recording the expense and you are also recording the borrowing from the credit card company at the same time.

For income tax purposes (and good accounting practices as well), the transaction date is the date that should be used in QuickBooks.  It is a mistake to use the credit card statement date or the check payment date as the date of the transaction in QuickBooks.

Are Credit Card Payments an Expense?
I cannot tell you how many times I have seen people record credit card payments as an expense.  Credit card payments are not an expense; instead they are payments on the amount borrowed from the credit card company.  In essence, credit card payments are payments of a debt rather than an expense.

I hope this is helpful to you.