How to record a credit card payment

When the business uses its card, it buys something now and owes the card provider for it. business.gov.au describes credit card payments as creating a debt with the provider. The cost is recorded at that point, against whatever was bought.

When the business later pays the provider, money leaves the bank account and the debt shrinks. Nothing new has been bought, so this payment is a movement between two of the business's own accounts: an asset, the bank, and a liability, the card.

Mixing these up is an easy mistake. It usually shows as the payment to the provider recorded as an expense, when the purchases behind it were already recorded.

Enter each purchase from its receipt or invoice, dated when the card was used. The usual entry is a debit to the account for what was bought, such as office supplies, fuel or equipment, and a credit to the credit card account, which raises the amount owed.

• Enter purchases as they happen, or at least weekly, so receipts are still easy to find.
• Ask each cardholder for the receipt and a word on what each purchase was for.
• If a purchase is partly private, record only the business share as a business cost; the ATO's tips ask for that share to be worked out accurately.
• Personal spending on a business card is not a business cost. Record it against an owner's account; which account fits your business structure is a question for your accountant.

Enter the payment from the bank statement, dated when it left the bank. The usual entry is a debit to the credit card account, which lowers the amount owed, and a credit to the bank account.

• Record the amount actually paid. If you pay only part of the balance, the rest simply stays owing on the card account.
• A payment taken by automatic direct debit is recorded the same way. business.gov.au says setting regular bills to pay automatically lowers the chance of errors.
• If you pay more than the balance, the card account moves to the other side, showing that the provider owes the business until later purchases use up the credit.

The table follows one card through a month of charges, a refund and the payment that clears the month's balance.

Only the ink, the fuel and the interest are new costs, and the refund takes back part of the ink. The supplier bill was a cost when it was first entered, and the payment to the provider only moves money from the bank to the card. After the payment, the card account in the books is back to nil.

If you enter supplier bills as they arrive, a bill paid by card is already in accounts payable as a cost. Paying it by card swaps one debt for another: the supplier is paid, and the card provider is now owed. The usual entry is a debit to accounts payable and a credit to the credit card account.

• Interest on the card: debit interest expense, credit the credit card account.
• Card fees, such as an annual fee: debit bank fees, credit the credit card account.
• Refunds onto the card: debit the credit card account, credit the account the original purchase went to.

• From another business account, such as one used to set money aside: credit that account instead of the everyday bank account.
• From the owner's personal money: the card account still goes down, but the credit goes to an owner's account, because the owner has put money into the business. Ask your accountant which account suits your structure.
• By moving the balance to another card: debit the old card account and credit the new one, since the debt has only changed lender.

Once purchases, refunds, interest and payments are in, compare the card account in your books with the provider's statement and work out what any difference is made of. A card account sitting on the wrong side with no overpayment behind it usually means a payment was recorded twice or a purchase was missed.

Keep the receipts with the statements. Expense records belong in the set business.gov.au says to keep, most of them for 5 years.