Thanks, again, for your continued efforts.  I'd like to respond to qbteachmt's comments and Teri's list of questions separately as follows.  First I want to reiterate my scenario again which is slightly different from richardgreen's situation, so we can comment relevant to the scenario.

ndfbroadwick scenario (using QB Pro Desktop 2016):  Co A is amex cardholder.  Co B no amex.  Amex bill arrived showing $1000 balance due which breaks down to Co A's charges = $700 and Co B's charges = $300.  Co A and B made direct payments to amex in the amounts of $700 and $300, respectively.

Response to Teri's questions:

1.  Co A = S Corp and Co B = LLC;  one owner, no other shareholders.

2.  Checks issued to amex have been paid and cleared with the banks.  Though nothing has been entered in QB as we realized the mistake and await proper instructions for accurate entries to be recorded.

3.  The $300 charges on amex were incurred by owner's travel expenses relating to Co B, such as airline tickets, lodging, and meals.  There were no purchases of equipment, supplies, or the like of any sort.

4.  Amex card is already set up on Co A in QB.  We already know how to do normal credit card entries by inputting transactions.  We do not download cc statements.

5.  We can do a manual expense report if it's a necessary step to fix this one-time oops.  Otherwise, we don't normally do expense reports on owner's amex charges.

Response to qbteachment:

1.  Your last post seems to make sense to me.  However, can you confirm that it is specifically referring to my situation or richardgreen's?

2.  Since my situation is not about a "computer" expense, does this change your explanation?  If so, please explain.

I believe these are the entries being discussed here:

Company A:

Debits Expense or Asset for AMEX purchases    $700*

Credits CC liability account for AMEX purchases $700

Debits current asset:  "Amount Due from Co B"   $300

Credits CC liability account for AMEX purchases  $300

Debits CC liability account for AMEX purchases  $1000

Credits Current asset "Amount Due from Co B"     $300

Credits Cash/Bank account for AMEX payment      $700

Company B:

Debits Expense or Assets for AMEX purchases    $300*

Credits Current liability "Amount Due TO Co A"  $300

Debits Current liability "Amount Due TO Co A"  $300

Credits Cash/Bank for amount paid to A’s AMEX $300

This is for GAAP Accrual-Basis accounting, as I do for all.

Please note that the lines in blue are the ones that will remain on your books as the black ones will zero out.

* The accounts here would be based on what was purchased whether computer asset or travel expenses.

As emphasized earlier, these should be done using QB CC functions on Company A who has AMEX CC but would need to be JE's for Company B who does not have their own CC Liability account setup to be used.

I am just showing the debit and credit entries that should be the entries in QB General Ledger when done. Although I do totally agree with using system functions vs. JE's, I do not agree with hiding debits / credits.

In my opinion, anyone doing bookkeeping /accounting, and certainly anyone who is responsible for a set of books at a company needs to understand the basics of debits and credits.  I teach this to all my clients.

I believe that anyone smart enough to own a business can easily learn these and should not trust anyone who does not know these to manage their accounting or bookkeeping. That would be just crazy to me. :)

I realize that I am likely greatly outnumbered on this opinion, but can only speak for what I have seen work and I don't believe in keeping accounting a secret so that my clients must keep me since they are clueless.

I would rather share all the clues there are so clients can learn and we can all move ahead to the next step. There is no shortage of QB clients going off the deep end daily and needing accounting assistance next. :)

Richard - Thanks for the info in your email and pleae let me know if I can help further.

"Response to qbteachment:

1.  Your last post seems to make sense to me.  However, can you confirm that it is specifically referring to my situation or richardgreen's?"

This has gotten Over Complicated. My response applies to the Situation that you Paid something that is not Yours = Other Asset. That's all you need to keep in your mind, for the data.

"2.  Since my situation is not about a "computer" expense, does this change your explanation?  If so, please explain."

One entity has "Other Asset" for something they Paid for. The other has "whatever it would have been, if I had paid for it" but "I didn't pay for it = my Liability to pay the people that paid For Me."

Honestly. It is Two Entries for each entity.

Company A = Paid out an Other Asset.

Company B = incurred a cost paid by another = enter your details but the amount is owed as Liability.

Company B = pays back Debt (liability). Or Company B paid the AMEX amount directly, which means they can Write a Check to AMEX and post the actual expense there; keep in mind they Never Bought anything from AMEX, though. That is not the Actual Supplier that sourced the good or service or materials that were paid for by Company B.

Company A = makes a deposit to offset the Other Asset = They got repaid. Or, Company A enters a Credit Card Credit, because the repayment was made directly to AMEX by Company B.

(this post has been edited to add more details)

It is Not as hard as this has turned into.

QBT - You made a big deal about how they must use CC Liability function, but don't see those entries here, nor the actual cash entries.  Doesn't QB entry for CC transactions automatically hit CC Liability on Co. A? Your entry refers only to Asset accounts on Co. A and on Co. B they would need to record that liability B4 they can pay it back, right?  Also, do you really suggest they record a fake bank deposit, when the actual payment was made directly to AMEX?  Not questioning your recommendation, just the consistency from earlier post that I was trying to follow here.  Unless I missed something in the details, they both had same situation, where the only difference was what the AMEX charges were for, where one was for a computer purchase and one was travel expenses, as noted in the example entry I posted here.  However, as long as they understand your entries, that is what matters, no need to explain to me since I know the entries to do.

"how they must use CC Liability function, but don't see those entries here, nor the actual cash entries.  Doesn't QB entry for CC transactions automatically hit CC Liability on Co. A?"

I think you just confused Two Different Debt accounts.

The Credit Card for Company A = The source of the funds or "how" it was purchased. Whether paid by checking or by putting it on the credit card, the payment is Other Asset for Company A. Company A put it on their card. A Credit Card Type of account in QB is one of the many "liability type" activities. In this example, CC is the Source and Other Asset is the "Target" or the "What we just paid for by charging it."

Company B has a condition no different than Buying something and taking out a Loan to do so.

I have made two screenshots.

On the left is the Bill that Company B will enter, and the Negative I put here could be on a Vendor Credit; it represents the Debt balance = the Liability to be paid later.

On the right is the Credit Card Charge that Company A will enter, because Company A paid for this on their AMEX, but it is to be Repaid to Company A by Company B.

So, later, Company A pays out the debt (liability) on the Check on the Expenses tab and Company B Processes a Deposit entry "from" their Other Asset.

No, I never stated anything about Pretend accounts.

I hope this helps.

• Step 1 - When the expenses are incurred (applies at all times):
  • Company A would post debits for their own expenses, a debit to a receivable account from Company B for its expenses, and a credit for the full amount due to the cc liability account. Company B would post debits for its own expenses, and a credit to the payable to Company A. 
• Step 2 - When the payment is made (choose one): 
  • If Company B makes the payment directly to the cc company, Company B books a credit to cash and debit to the payable to Company A. Company A would post a debit to their cc liability account and a credit to their receivable from Company B.
  • If Company B makes the payment directly to Company A, Company B books a credit to cash and debit to the payable to Company A. Company A would book a debit to cash and a credit to the receivable from Company B.
  • If Company A makes a payment direct to the cc company on behalf of Company B, they would book the payment as they normally would... a debit to the cc liability and a credit to cash, as long as the receivable has already been booked when the expenses were incurred.

For cash-basis accounting (choose one):

• If Company B makes the payment directly to the CC company, Company B books a credit to cash and debit to its expense accounts. Company A would post a debit for its own expenses and a credit to cash for its own payment made direct to the CC company.
• If Company B makes the payment directly to Company A, Company B books a debit to its expenses and a credit to cash. Company A books a debit to cash and a credit to a receivable from Company B.
• If Company A makes a payment on behalf of Company B to the CC company, it would book a credit to cash, debit to its expenses, and a debit to the receivable from Company B. 

In the end, the receivable and payable accounts between both companies need to match. If they are ever out of balance, you know that one of the companies missed recording a transaction. 

qbteachmt wrote:

I think you just confused Two Different Debt accounts.   

 

What two debt accounts are you referring to?  I know CC account is a Liability account, and that is the one I am asking about since your entries for Company A referred only to two Asset accounts, so then assume you are only providing the one side of the entry there.  That's fine if they understand.

 

The Credit Card for Company A = The source of the funds or "how" it was purchased. Whether paid by checking or by putting it on the credit card, the payment is Other Asset for Company A.

Company A put it on their card. A Credit Card Type of account in QB is one of the many "liability type" activities. In this example, CC is the Source and Other Asset is the "Target" or the "What we just paid for by charging it."  

Yes, of course.  I know what the entries should be, I just showed both sides of each entry to them.

 

Company B has a condition no different than Buying something and taking out a Loan to do so.

Sure, agree, just a matter of who they owe/pay.

 

I think we said the same thing but I showed both sides of entries and you only referred to on side of each of them so then it looks like a different answer to anyone not familiar. Seems way easier to just say debit and credit than provide one side of each entry and then assume the other side is correct.

---

This is Wrong: "since your entries for Company A referred only to two Asset accounts,"

I am showing a Credit Card Charge, which Increases the debt on your AMEX credit card (a type of liability) running debt balance, is offset to an Other Asset, because it isn't Your Expense and it is not any sort of Liability.

Let me break this down for you, by the Behind-the-scenes debit and credit:

Create Credit Card Charge with Other Asset on the Expenses tab = Debit Other asset and Credit AMEX

Their AMEX account is paid by an  OUTSIDE entity = the people that really should have bought that thing for themselves. That entry for Company A:

Enter Credit Card Charge and change the radio button to a Credit; list the Other Asset account here, to show your AMEX account has gone down by a payment made directly by the person that really owed You. Since they didn't pay you, you won't have a deposit. Since they Did pay your AMEX, your AMEX balance goes down. So, you enter this Credit Card Credit and on the Expenses tab you list the Other asset = you got Repaid, albeit indirectly. Behind The Scenes:

Debits the AMEX account and Credits the Other Asset. Credit Other Asset = the balance Owed to you has Gone down. Debits the CC account = the balance you Owe has gone down.

To summarize this for Teri: Company A has No Liability other than Credit Card, because their card got used.

I really want to keep the post Simple, because these are getting harder and harder to follow. Things are very convoluted, but the topic's answers never had to be this convoluted.

Hi All, I'm in the process of compiling and organizing all of your responses.  So far, Teri's outline is very organized, easy to follow, and appears to balance out.  Frinfrocktax's outline for accrual basis for the scenario "If Company B makes direct payment to CC company" however doesn't balance out, and I think might be missing an entry.  Qbteachmt's logic seems to be aligned with Teri's, but just different methods.  Thank you all so much for your time and contribution!  Really truly appreciate all your help.  I hope this will be helpful to others as well.

---

@qbteachmt wrote:

To summarize this for Teri: Company A has No Liability other than Credit Card, because their card got used.   Um, yes, I know that.  Not sure where or why you saw two Liability/Debt accounts, I saw none on your entries, which is why I asked since you made the point about using CC account but did not.

 

I really want to keep the post Simple, because these are getting harder and harder to follow. Things are very convoluted, but the topic's answers never had to be this convoluted.  

I agree this has been complicated way too much.

 

---

I think if you look, you will see that we are saying the same thing, but I am just showing both sides of each entry and stating which are debits vs. credits so they can confirm they are correct in GL report and as noted the entries I showed in blue stay as balances in accounts and the ones in black all zero each other out.

---

@ndfbroadwick wrote:

Hi All, I'm in the process of compiling and organizing all of your responses.  So far, Teri's outline is very organized, easy to follow, and appears to balance out.  Frinfrocktax's outline for accrual basis for the scenario "If Company B makes direct payment to CC company" however doesn't balance out, and I think might be missing an entry.  Qbteachmt's logic seems to be aligned with Teri's, but just different methods.  Thank you all so much for your time and contribution!  Really truly appreciate all your help.  I hope this will be helpful to others as well.

---

The bullet for "If Company B makes the direct payment to CC company" is the 2nd part of the transaction when payment is made. The first part of the transaction is when the expense is incurred, which is the first bullet I listed in the accrual-basis section. You need to first book the expense and receivable/payable in both companies before you book the payment made. I'll revise the post so that it is more clear as to what is required versus what is an option.

Added description of each entry in red to explain entry.

Item 1 is recording Expense/Assets for AMEX purchases.

Item 2 is recording Cash entries between A, B and AMEX.

Company A:

1a)  Debits Expense or Asset for AMEX purchases    $700*

       Credits CC liability account for AMEX purchases $700

      To record Expense or Asset  bought on Co A's AMEX

1b)  Debits current asset:  "Amount Due from Co B"   $300

       Credits CC liability account for AMEX purchases  $300

      To record Co B purchase on Co A's AMEX to be re-paid

2a)  Debits CC liability account for AMEX purchases  $1000

       Credits Current asset "Amount Due from Co B"     $300

       Credits Cash/Bank account for AMEX payment      $700

       To record payment to AMEX and payment from Co B

Company B:

1c)  Debits Expense or Assets for AMEX purchases   $300*

       Credits Current liability "Amount Due TO Co A"  $300

       To record Expense or Asset  bought on Co A's AMEX

2b)  Debits Current liability "Amount Due TO Co A"  $300

        Credits Cash/Bank for amount paid to A’s AMEX $300

        To record payment to AMEX  as repayment to Co A

Finfrock Tax, I understood your format from the start that leads to 3 scenarios of payments.  By the way, thanks for adding the additional scenarios, which can be helpful should they occur.  However, when I reformatted your explanation for the first scenario (direct payment to CC company) to a double-entry ledger, it doesn't appear to balance out.  I'm in the process of evaluating it again.

Teri: You still have it Wrong. That is Too Many Entries.

1a. Enter Credit Card Charge by Company A, as Other Asset.

1b. Enter Credit Card Credit when they learn Company B repaid it directly to AMEX, posting the expense entry as Other Asset.

Company B:

Post a Payment to AMEX posting what was bought on their behalf.

Or, Company B will want to use Enter Bill, as I showd, to enter the Real Vendor name, ending at $0 on the bill, because it was offset to a Liability account. In this example, the Check to AMEX is paying out that Liablity balance.

---

@ndfbroadwick wrote:

Finfrock Tax, I understood your format from the start that leads to 3 scenarios of payments.  By the way, thanks for adding the additional scenarios, which can be helpful should they occur.  However, when I reformatted your explanation for the first scenario (direct payment to CC company) to a double-entry ledger, it doesn't appear to balance out.  I'm in the process of evaluating it again.

 

---

Sorry for the continued confusion. Are you making these entries as JE's? Or are you posting them through QB functions? The debits and credits should balance out if making JE's in a double-entry ledger. I personally feel that the JE's are much easier; however, if you're using QB functions, you'll need to set some things up in advance before posting the various entries through the QB buttons/functions. 

"I personally feel that the JE's are much easier"

That would not be the Right way to do this, though. AMEX is a credit card provider, and you would have a credit card type of account in the system, so there is no JE. There is Credit Card Credit and Credit Card Charge entries. That way, you see the data input fields that are available. JE is a brute force accounting entry, bypassing the functions in QB Online and Desktop, and worse, making a mess of the Name-based reporting and not allowing you to list items (products/services). They bypass Cash vs Accrual Basis, as well.

You bought a program = an Interface which means tools. Using a JE is like using paper, and bypassing everything about the program's reporting that is the most powerful part of these tools.

Try a JE instead of a Sales Receipt for selling inventory with sales taxes required, and you start to see how JE breaks down into "not the right way to do this." Use a JE for AP for inventory, and try running a 1099 report and an inventory report, to see those shortcomings, as well.

---

@qbteachmt wrote:

"I personally feel that the JE's are much easier"

 

That would not be the Right way to do this, though. AMEX is a credit card provider, and you would have a credit card type of account in the system, so there is no JE. There is Credit Card Credit and Credit Card Charge entries. That way, you see the data input fields that are available. JE is a brute force accounting entry, bypassing the functions in QB Online and Desktop, and worse, making a mess of the Name-based reporting and not allowing you to list items (products/services). They bypass Cash vs Accrual Basis, as well.

 

You bought a program = an Interface which means tools. Using a JE is like using paper, and bypassing everything about the program's reporting that is the most powerful part of these tools.

 

Try a JE instead of a Sales Receipt for selling inventory with sales taxes required, and you start to see how JE breaks down into "not the right way to do this." Use a JE for AP for inventory, and try running a 1099 report and an inventory report, to see those shortcomings, as well.

---

I wasn't recommending the use a JE for all types of entries. I was recommending the use of a JE for this particular type of entry since QB doesn't have functions available to easily record an intercompany loan situation. This is exactly why I don't recommend QB to larger or more complicated clients, because QB doesn't have the functionality to handle complicated transactions unless you find work-arounds to make it happen, or post JE's. You can get reporting by name in JE's if you enter the information in the JE. 

In many college-level accounting courses that teach QB, JE's are recommend and even required for certain types of entries. JE's are made available on QB for those types of entries for which there isn't a common function available. There is nothing wrong with using a JE when the situation calls for one, but I would not recommend using a JE for all entries. 

JE's absolutely do NOT bypass accrual or cash basis accounting. Accrual basis is based on when you recognize your expenses and revenue (when incurred/earned versus when paid/received). It has nothing to do with whether you've used QB functions. As long as you use the correct accounts in the JE, you can make your entry accrual or cash basis. Besides... what do you think the QB functions are doing in the background when you use them? They are making JE's on your behalf so that you don't have to figure out debits and credits on your own. How do you think other accounting programs work that don't have QB functions? They rely on JE's to be made. Accounting always starts with the basics. The cool features and buttons in QB don't change the basics of accounting.

If the user prefers to use all QB functions for this type of entry, it can certainly be done, but it is a bit more convoluted and can lead to more errors than just posting a simple JE. The end result is the same though on the GL and financial statements. 

FinFrockTax, I will be using the Enter Credit Card Charges/Refund for posting the Amex charges to the appropriate expense category in Co A.  The rest of the entries will be JE.  Will this be ok?  How do you see the actual QB steps?  Here's a recap of the situation for your reference:  Co A is amex cardholder.  Co B no amex.  Amex bill arrived showing $1000 balance due which breaks down to Co A's charges = $700 and Co B's charges = $300.  Co A and B made direct payments to amex in the amounts of $700 and $300, respectively.

"since QB doesn't have functions available to easily record an intercompany loan situation."

That isn't the discussion here. The discussion here has a Source account = credit card. Credit Card liabilty type includes the Tools for credit card charge and credit (returns) entries.

"many college-level accounting courses that teach QB, JE's are recommend"

Not if they are teaching using any of the manuals provided, such as Sleeter and Intuit manuals would have you use the Credit Card Functions. I know; I taught this for 8 years using manuals by Intuit. Sleeter Group, Paradigm, etc. However, as the subcontractor to the Business College accounting instructor, I also had to be careful and Dispute her comments about using JE in front of her students; I did so not by direct confrontation, but by pointing out, "Oh, Look; here's a Tool we are meant to use, that will do this for us." I learned to be diplomatic on the fly, in front of her class, to not insult her why "we all get to learn how this works" using QB. QB is not Accounting; it is a Program used to Do your accounting. The Program has the tools. You would not buy a Cadillac to shift it manually, like a Ferrari. You buy the Cadillac because you don't want to Manipulate it manually and you want to let the Functions work for you.

"As long as you use the correct accounts in the JE, you can make your entry accrual or cash basis."

I'm sorry, but that is incorrect for QB reporting. Try it.

"what do you think the QB functions are doing in the background when you use them? They are making JE's on your behalf "

Nope. They are making Debits and Credits with Target and Source names, because this is a Relational database. Try it yourself. Buy inventory, posting to AP, using a JE. List more than one Vendor and more than one Inventory product. Put in Quantity and Cost, each. Try using a JE to Pay payroll liabilities, in Desktop. You are able to do "accounting" but you just orphaned all of the Functions and reporting that relied on the Proper tools, such as Enter Bill and Pay Liabliity.

The Functions are part of a Program. The Names are part of the Unique Key Fields for the relational database. The Items (products and services) flow the data to the accounting. Try running a Profit report on your Sales Products, by only entering purchases and sales as JE. It just doesn't work.

"The end result is the same though on the GL and financial statements. "

Yes, you get pretty Financial reporting. Unfortunately, you just bypassed at least 85% of the program tools and functions and those reports will have no data. Examples: Sales by Customer, Purchases, product profit, Sales Taxes, inventory, etc.

If you are using Desktop, try running a Job Profitability Detail report for the customer where you bought a lot of direct services and goods for them, and charged them. Using JE = No meaningful data on that report. Just one line as No Item. For any program with inventory, use only JE, then run inventory reports.

Yes, yo ucan do Periodic Inventory management by posting to Asset and removing costs to COGS manually. That isn't how to Use QB. That is how to Do Accounting. Completely different end results. Let the program do the accounting by using the tools, and now you also are Managing Inventory = Perpetual Inventory.

"I will be using the Enter Credit Card Charges/Refund for posting the Amex charges to the appropriate expense category in Co A.  The rest of the entries will be JE.  Will this be ok?"

Company A enters the Charge. They also enter Credit Card Credit posting to Other Asset for the Amount Company B paid directly to AMEX. These get their separate Dates. Now the Other Asset account = 0 = Repaid in full.

Company B can simply Pay AMEX and list the expense right on the Check to pay Amex.

Company A pays their AMEX balance by Checking, listing the AMEX account as the "expense." You typically do this after using the AMEX statement to Reconcile. That is not a BIll; it is your Account Statement.

There are no JE involved in any of this.

---

@ndfbroadwick wrote:

FinFrockTax, I will be using the Enter Credit Card Charges/Refund for posting the Amex charges to the appropriate expense category in Co A.  The rest of the entries will be JE.  Will this be ok?  How do you see the actual QB steps?  Here's a recap of the situation for your reference:  Co A is amex cardholder.  Co B no amex.  Amex bill arrived showing $1000 balance due which breaks down to Co A's charges = $700 and Co B's charges = $300.  Co A and B made direct payments to amex in the amounts of $700 and $300, respectively.

---

In Company A, you'll need to create an AR account for "Company B Intercompany Loan". You'll also need to create a Customer for Company B. When you go to Enter CC Expenses, you'll choose Customer Company B and enter the amount that applies to their charges in bulk (no need to itemize the expenses). In the Account line, you'll choose the Company B Intercompany Loan as the account, and the full amount that is applicable to Company B.

If you want to also use a QB function in Company A for when Company B makes the payment directly to Amex, you could create a new Item as Other Charge and have it apply directly to the Amex payable account. When Company B makes a payment directly to Amex, you would create a Credit/Memo for Company B, choose your Company B Intercompany Loan receivable account, and use your new Other Charge item created for the amount that was paid. When you record the credit memo, it will ask you if you want to apply it against the open invoice for Company B to relieve the balance due that was created when you entered the original CC charge.

If the payment is made from Company B to Company A directly, rather than to Amex, you can simply receive a payment from customer Company B and select the Intercompany Loan as the receivable account to apply the payment against the amount due from Company B.

The above is all for Company A though.

In Company B, you would create a new Accounts Payable account for your Company A Intercompany Loan. You also need to create a vendor account for Amex/Company A (with the check payable to Amex). You can then go to Enter Bills and select the Intercompany Loan as your AP account rather than having it go directly to your regular AP. You would then enter the expenses as normal for Company B based on the expenses incurred on the statement as a bill from Company A.

When you go to Pay Bills, you would make sure your AP account is set to the Intercompany Loan and then select the bill that was entered for Amex/Company A and make your payment against the bill as you normally would pay any other bill.

If you end up making a payment directly to Company A rather than Amex, you'll just need to update the name printed on the check before it prints.

I would recommend checking to make sure the Receivable in Company A and the Payable in Company B have the same balances at least monthly to make sure nothing is missed on either side.

If you wanted to do this all as JE's, I would recommend following my original post since it provides the debits and credits to post in each company.