Properly accounting for and reconciling credit card statements are good accounting practices and part of a fraud prevention and detection program.
QuickBooks will keep track of your credit card purchases much the same way that it keeps track of activity for your bank statement.
The QuckBooks credit card register columns are even aptly labeled “Charge” and “Payment”. After your activity is recorded, you can reconcile just like you do (or should) with your bank statement. It also makes paying and coding the payment of the credit card very easy, especially for those who chose not to payoff the full balance each month.
To setup and use credit cards in QuickBooks:
- Add a new account to the chart of accounts named similar to your credit card, such as “Bank of the Month Credit Card x5248”. It will be a [Credit Card] type of account.
- Using the credit card register or the [Enter Credit Card Charges] form, record all transactions from actual credit card receipts by date and vendor instead of recording transactions directly from the credit card statement. This will help you better identify fraudulent transactions.
- Resist the urge to download activity from the credit card company unless you have already recorded the activity and you are using the download to “match” your transactions.
- Make payments on the credit card balance by simply coding the payment to the credit card account. No other coding is necessary since the expenses are accounted for when the charge is recorded from the receipt.
- Reconcile the credit card statement using the QuickBooks reconcile credit card feature. Question activity on the statement that you have not already recorded in terms of fraud or address poor bookkeeping practices or tweak policies to get credit card activity recorded in “near real time” instead of at the end of the month.
Credit card charges for cash basis taxpayers are deductible in the year they are charged, not the year they are paid for. Recording individual credit card charges in QuickBooks will properly report your deductions in the appropriate year and possibly accelerate a deduction that you would have inadvertently deferred a year.