by Dida Clifton
I recently published a short e-book covering the Top 10 Errors that I've most commonly seen in QuickBooks. I'm slowly going through each on my TOS (TheOfficeSquad) Blog. I came across something in the office last month that made me jump ahead to #5 on my list.
We received the QuickBooks file for a new client from their previous bookkeeper. While reviewing the Profit and Loss Statement I discovered the following accounts in the Chart of Accounts.
1. Checks written – expense
2. Credit Card Expense – expense
My first thought was “This came from a paid bookkeeper. A professional. Really? No way? “, (bang head on table) but yes indeed, it did.
Number 5 of my top ten is not tracking credit cards correctly. The checks written error will have to be covered in a different blog post. No worries. I won’t forget. So….credit card expense. There is no such thing. Credit cards for the business should be entered in QuickBooks as a credit card account. Just like a bank account is entered and tracked. The business credit card even needs to be reconciled monthly, just like a bank account.
I believe the confusion that causes this type of error is this: a lot, and I do mean A LOT, of small business owners use their personal credit card for business expenses. They pay for the monthly payment on that personal credit card with the business bank account. But since that card is not in the QuickBooks as a credit card, they don’t know how to post the payment. Ta Dah! Credit card expense is born. It’s an understandable error if you’re a business owner doing your own books with no training. It is NOT understandable if you’re a professional bookkeeper. Shame on you!
Here is what should be happening: if the business owner is using their personal credit card to pay for business expenses, it’s a loan from the owner or equity. The items paid with that personal card; such as fuel, meals, advertising, or office supplies are entered into QuickBooks as the correct expense matching what they were. The funds to pay for them comes from the equity account or a loan account. Then, the payment made to the credit card company monthly is posted toward that equity or loan account.
Getting a credit card for the company, entering it in QuickBooks, and only using it for business will definitely help with this issue. Although, that’s not always an option for the microbusiness or startup, so learning how to track properly will save a lot of time, money, and heartache later.
Byline: Dida Clifton, CEO & Founder of TheOfficeSquad®. Technology, training and outsourced back office support to grow small business. www.theofficesquad.com 702-649-3495