How to reconcile a credit card

business.gov.au explains that paying by credit card creates a debt with the card provider. For a business that uses a card, that debt is a liability in its books, and business.gov.au's balance sheet template puts credit cards payable among the current liabilities.

The card account in your books should show what the business owes the provider at any date. A reconciliation compares that figure with the provider's statement and explains every difference between them. It doesn't make the two figures equal. It tells you why they differ and which side needs fixing.

business.gov.au notes that a card payment leaves an automatic record behind. That outside record is what makes a card account straightforward to check.

• Give each card account its own liability account in your books, named so you can tell them apart, and record every purchase, refund and repayment in it.
• If several people hold cards on one account, consider tracking each cardholder's spending separately so receipts are easier to chase.
• Agree in writing what each card may be used for, and that personal spending stays on personal cards.
• Reconcile to the statement date. The provider fixes its closing balance on that day, so it gives you a firm figure to work from.

• the card statement for the period, with its opening and closing balances
• the receipt or invoice for each charge
• the card account in your books, up to the statement date
• your previous card statement and last reconciliation, including any items still outstanding.

Receipts matter because a statement line says very little. The ATO's record-keeping rules say the minimum information on a record generally includes the date, the amount, a description and the purpose of the transaction. The statement gives the date, the amount and usually the merchant's name. The receipt or invoice shows what was bought, and a short note from the cardholder can say why.

1. Check that this statement's opening balance equals the previous statement's closing balance. Then carry forward the outstanding items from the last reconciliation; its adjusted book balance can differ from the statement balance.
2. Tick each purchase on the statement against its receipt and against the entry in your books.
3. Tick each refund the same way. A refund lowers the amount owed on the card.
4. Tick each repayment against the payment that left your bank account.
5. List every statement line with no matching entry in your books, and every entry in your books with no matching statement line.

• Fees and interest on the statement that aren't in your books: record them as costs charged to the card.
• Purchases on the statement with no entry: find the receipt, ask the cardholder what it was for and record it. If the receipt is lost, ask the supplier for a copy.
• Timing: a purchase or repayment in your books that the provider hadn't processed by the statement date. Leave it, and check it appears on the next statement.
• Personal spending on a business card: record it as personal, not as a business expense, and ask your accountant which account it belongs in.
• Errors in your books, such as a wrong amount, a charge entered twice or a purchase recorded against the wrong card: correct the entry and keep the receipt that supports the correction.
• Charges nobody recognises: check with every cardholder first. If a charge still can't be explained, raise it with the card provider straight away, list it as an open item on the reconciliation, and ask your accountant how to record it if it isn't resolved by the end of the period.

A repayment sends money out of the business bank account to the card provider. It lowers the bank balance and lowers the amount owed on the card by the same amount. It isn't a new expense: each purchase it pays for was recorded as an expense, or against another account, when the card was used.

Recorded this way, one repayment appears in two reconciliations. It clears in the bank reconciliation as money out of the bank account, and in the card reconciliation as a repayment the provider has received. A repayment made just before the statement date may show in only one of them for now.

Start from the balance owing on the statement and adjust it for the timing items and any charges under query on your list. The result should equal the card balance in your books. If it doesn't, an item is still unexplained: keep looking rather than posting an adjustment to make the figures meet.

Reconcile each card when its statement arrives, and at every month end you report on. One ATO tip for staying clear of common record-keeping errors is to keep accurate records of electronic transactions, and card spending is one of the easiest places for a missing receipt to go unnoticed.

Keep the statements, the receipts and each reconciliation together. business.gov.au includes bank records and records of all business expenses in its list of records to keep, with a usual keeping period of 5 years for most business records.