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Frequent Explorer **

How to treat credit card transactions (to pay expenses) in cash based accounting

When a business using cash based accounting pays an expense with a credit card, is that considered a cash transaction, or a credit transaction? Does that transaction hit the books with the CC is swiped, or when the bill is payed a month or so later? What's the best way to handle/treat these credit card transactions?

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Best answer 04-10-2018

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QuickBooks Team

Re: How to treat credit card transactions (to pay expenses) in cash based accounting

Thanks for reaching out to us, kmds.

 

Technically, a credit card transaction doesn't count as a cash transaction. When a credit card is swiped, it will affect the credit card liability account. When a bill is paid, it will affect the bank and the liability accounts.

 

Regardless whether you're using cash or accrual basis, you'd want to record it normally. You can create an expense and a bill. Here's how:

 

1) Click the Plus icon, and then select Expense.

2) Choose the supplier, and then select the credit card account.

3) Enter the details of your purchase.

4) Once done, click Save and close.

5) When you receive the credit card bill, create a bill in QuickBooks Online.

6) In the supplier drop-down list, select the bank institution.

7) Under the Account details, select the credit card account.

8) Enter the total amount of the purchase and other details.

9) Click Save and close.

 

Once you are ready to pay the bill, create a payment for it. In the bill section, you might be wondering why the bank was selected instead of the supplier. Technically, the bank pays the supplier for the goods and then charges you for the amount. Your payment would have to be made to the bank to settle the amount.

 

If you have more questions with this, please let me know. I'd be more than happy to share my ideas and suggestions.

6 REPLIES 6
QuickBooks Team

Re: How to treat credit card transactions (to pay expenses) in cash based accounting

Thanks for reaching out to us, kmds.

 

Technically, a credit card transaction doesn't count as a cash transaction. When a credit card is swiped, it will affect the credit card liability account. When a bill is paid, it will affect the bank and the liability accounts.

 

Regardless whether you're using cash or accrual basis, you'd want to record it normally. You can create an expense and a bill. Here's how:

 

1) Click the Plus icon, and then select Expense.

2) Choose the supplier, and then select the credit card account.

3) Enter the details of your purchase.

4) Once done, click Save and close.

5) When you receive the credit card bill, create a bill in QuickBooks Online.

6) In the supplier drop-down list, select the bank institution.

7) Under the Account details, select the credit card account.

8) Enter the total amount of the purchase and other details.

9) Click Save and close.

 

Once you are ready to pay the bill, create a payment for it. In the bill section, you might be wondering why the bank was selected instead of the supplier. Technically, the bank pays the supplier for the goods and then charges you for the amount. Your payment would have to be made to the bank to settle the amount.

 

If you have more questions with this, please let me know. I'd be more than happy to share my ideas and suggestions.

Frequent Explorer **

Re: How to treat credit card transactions (to pay expenses) in cash based accounting

Thanks so much @JamesPaulE for the detailed reply! A few things I need to clarify from your instructions. In my specific example, I have a Master Card that I'm paying off with a credit union checking account.

 

6) When entering the bill, there isn't a field labled "Supplier". There is one for vendor, however. Is that what you were referring to? Secondly - when you metion "the bank institution" is that referring to the checking account I'm using to pay the credit card bill (the credit union)? Or the banking institution the credit card is from (Master Card)? 

 

Thanks!

 

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Frequent Explorer **

Re: How to treat credit card transactions (to pay expenses) in cash based accounting

Oh, and when filling out the description and amount fields, should I include item detail of each of the transactions on the statement? Or is that not necessary?

QuickBooks Team

Re: How to treat credit card transactions (to pay expenses) in cash based accounting

Hi kmds..

 

Thanks for getting back to us and I'm glad @JamesPaulE was able to help. I can certainly help with the additional queries.

 

To answer you first question, yes, Supplier and Vendor would be referring to the same thing, they can appear differently depending on the version of the product you are using but Vendor would be correct :)

 

In terms of the bank institution this would be referring to to the account you are using to pay the bill.

 

The description field when filling out your transactions would be more for your reference, here you will have an opportunity to go into more detail about the transaction should you need to refer to it in the future. It would just allow you to add some more details for your own personal reference.

 

If there is anything else I can help with, let me know.

Frequent Explorer **

Re: How to treat credit card transactions (to pay expenses) in cash based accounting

Wonderful! Thanks @AshH and @JamesPaulE for all your help and clarification! Got it all figured out now :)

QuickBooks Team

Re: How to treat credit card transactions (to pay expenses) in cash based accounting

No problem at all @kmds, we are also happy to help here within our Community. Let us know if you need anything further :)