I’m frequently asked how to handle credit card charges in QuickBooks. There are basically two ways to handle it.
First is to simply have the credit card institution set up as a vendor. Then when the credit card statement comes in, enter the bill, allocating the different charges to your different expense accounts, like office supplies, materials for jobs/projects, meals, etc. With this method, you don’t need to enter the individual charges, just the totals for the different types of expenses.
The other method is to set up a credit card account in your QuickBooks. Then you can enter charges as you incur them, download the charges from the credit card website or you wait until you have your statement and then enter credit card charges. (Personally I prefer entering the charges periodically, like weekly; it tends to make the credit card a more manageable task and is easier to monitor account balance.)
With this second method, you can reconcile your credit card account like your bank account. The difference will be at the end, when you click on Reconcile Now. QuickBooks will ask if you want to write a check or if you want to enter a bill. Whichever method you select, QuickBooks will automatically assume you want to pay in full but you can change the amount if you want. I tend to write the check rather than enter the bill and postdate the check, assuming I’m not going to pay immediately. If you choose to enter the bill, QuickBooks will reduce the amount on a credit card and increase your Accounts Payable. While that is still fine from an accounting standpoint, most people think in terms of how much do I owe on a credit card and when part is sitting in payables instead of the credit card, you may think you have more available than you actually do. Subsequently, I find that with writing the check, there’s no confusion.
So which method is best for you? It depends. If you do not always pay in full, I recommend the second method; it will be easier for you to track what you actually owe. If several people in the company have cards, it might seem like too much work to enter the individual charges, so perhaps the first method would work better. Charges that are for customer projects/jobs should be listed separately so you can invoice the customer and get your job costing information. So, in those cases, I suggest a combination method – enter the “essential” individual charges (for client jobs) and then enter a consolidated charge (like one line for total office supplies, another line for meals, etc.).
Which method do you use? If you want more specific help on credit cards, let me know.