Accurately tracking, categorizing, and itemizing expenses is essential for bookkeepers and accountants. Not only does this help you keep track of inventory and costs from vendors, but it also prepares businesses for tax season.
Creating an Expense
The Expenses option on the +New button is an all-purpose window accommodating almost all forms of payment, including credit cards, debit cards, and cash.
Entering Expenses works exactly like creating a check, except there is no check number. Instead there is a free-form Reference number box.
Select +New > Expense.
Entering a credit card expense begins exactly like you were creating a check in QuickBooks Online.
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Fill in this window just as you would a Check. Be sure to choose your Checking account for debit card expenses, your Cash account for cash expenses, and your Credit Card for credit card charges. (Note: As discussed in previous articles if you’re buying Inventory or want to run reports on product sales, use the Item Details grid at the bottom of the Expense window.)
Automating Data Entry
PEBCAK! One of the most common errors I see is itemizing your charges on your Credit Card bill payments. This causes hours of extra work, hand calculating how much was spent on gas, office supplies, and other categories. Getting the numbers to add up takes a lot of effort!
Instead, connect your business credit cards to the Banking Feed and import the actual expenses themselves. Using QBO’s Banking Rules (see: 'Bank Rules' in this article) allows you to automate data entry for the routine expenses that typically are paid by credit card, like utilities and gas.
PEBCAK! If you happen to be doing both workflows, breaking down the credit card payment in your checking account register, and using the Banking Feed, you’re duplicating your expenses!
Paying Your Credit Card Bill
There’s a running debate between bookkeepers about whether to use an Expense or a Transfer for the credit card payment. An Expense is more involved, with the CC Company as the Payee, the Checking account at the top, and the Credit Card account in the line item at the bottom.
Many people find it easier just to enter a Transfer between the Checking account and the Credit Card. The monthly payment from the Checking account to the Credit Card technically is just a TRANSFER of money from Checking balance to the Credit Card balance. The one transaction shows up in both places, crediting the bank asset, and debiting the liability.
When using transfers, don’t make the mistake of sucking in two separate transfers from the feeds, one from your bank and a second one from your credit card company!
PEBCAK! If you’re creating Banking Rules for this transaction, only make ONE Rule for one side of the transfer. MATCH the other side!
The Solution - 'The New Pay Down Credit Card' feature
Now that I’m done preaching to the choir, let’s look at QBO’s new feature, Pay Down Credit Card. Using this consistent workflow ends all the confusion!
(1) Click on +New > Pay Down Credit Card.
Pay Down Credit Card feature in QuickBooks Online
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(2) Choose which credit card you’re paying. If you have a corporate card with sub-cards, pay attention to which card the bank applies the payment (Root account? Primary card?).
(3) Enter the payment amount. Note that it doesn’t matter whether you’re paying in full or making a partial payment.
(4) Enter the date you make the payment.
(5) Enter the Checking account you’re paying with.
(6) If you’re paying by paper check, check the box (paying online is so much easier!).
(7) Enter a memo if you’d like.
(8) If you have a PDF of the credit card statement, you can attach it to the payment (optional).
The transactions are now in both registers. It will Match in your Checking Banking Feed, and be available when you Reconcile your credit card.
If you would like to see this feature in action, check out my blog.
Managing Corporate Credit Cards
Both of these methods are slightly more complicated if you have a corporate card with sub-cards. In that situation, set up the Chart of Accounts with a main corporate card, with sub-cards for each employee. Be sure to use the last four digits of each employee’s card to keep it easy!
Connect the sub-cards to the Banking Feed but not the root corporate account. When you reconcile, only reconcile root card, because you’ll see all the transactions on all the cards in one place.
Unfortunately, some banks apply the payment to the root card, others to the primary cardholder. Most of the time the payment is applied to the main Corporate account (you’ll see it in your Checking account’s Banking Feed but not in the credit card’s feed). Other companies, like Bank of America, apply the payment to the primary card, so you WILL see it in the card’s bank feed.
There’s also a useful step to make your corporate cards report correctly on the balance sheet. Without it, your employee charges will accumulate indefinitely. It’s a best practice to zero out each employee’s balance every month by transferring the total to the main account as if the main account is paying off the sub-card.
When you reconcile, you’ll see the individual card balances as both a charge and a credit, offsetting themselves. Check them off!
By taking this step, when you look at the Balance Sheet, you’ll see only the current balances.
Lesson Wrap-up
Managing credit cards seems to mystify some business owners. Other than the fact that they’re liabilities instead of assets, credit cards in QuickBooks behave almost the same as a checking account.
For most credit card expenses, keep it simple: use the Banking Feed, and use Pay Down Credit Card for payments. These workflows make credit management simple for everyone in QBO.
If you’re working with corporate credit cards, things can be considerably more complex and I understand how confusing they can seem. That's why I demonstrate how to manage them in my Credit Cards for Business Course which maybe just what you are looking for to help you with these complexities.
If you would like to learn more about things like credit card expenses, vendor refunds, cash or check refunds, issuing vendor credits & applying vendor credits, I’ll be talking about them during my Vendor Workflow in QBO webinar on August 12 at 12 Noon Eastern. You can find out more about that webinar here.