Credit Card expenses are common now days in fact, it is a kind of credit facilities and does not differ in accounting treatment. Goods bought on credit from the supplier in the same way, Credit Card expenses is accounted into books of accounts This post will explain you how to book Credit Card expenses in accounts and in Tally.erp 9
Credit Card expenses | basic understanding
To book the the accounting entries for Credit Card expenses, one should understand the concept of credit card.
What is a credit card and how it works? who is paying the money, who is giving benefits who is receiving the benefits and what is the nature of benefits/expenses. The answer to above questions, will help in booking accounting entries for Credit Card expenses
Credit Card expenses | features of a credit card
A credit card is an electronic chip based card.
Credit Card expenses limit is pre-defined by the bank at the time of issuance of the card.
In fact, it is a facility by the bank like cash credit or a cash overdraft.
The bank will issue you statement on monthly base and will give you certain grace period to pay the amount due on your credit card.
A credit card holder can use the credit card on a POS ( Point of Sale) or over the web for online purchases or to incur expenses like booking traveling ticket, hotel booking, fuel filling in vehicle etc.
When a credit card is used for an expenses then card card holder does not require to pay any hard cash from his pocket, the card issuer bank will credit that amount to vendor.
Upon a pre-fix date the bank will issue a statement of all expenses made by the card holder which contains a due date for payment of the credit card dues to the issuer bank.
The Card holder pays the due on or before the due date, and one billing cycle comes to an end!
Credit Card expenses how to book in Accounts and in Tally?
The basic principle of accounting says debit the expenses and credit the person who is giving the benefit!
Let’s understand it with more clarity.
You made an expenses of booking a traveling air ticket on date 10.05.11
and paid the amount of USD 500 (INR Rs. 22000) through your credit card which is issued by your Citi Bank.
Here the travelling company or agent through whom you have booked ticket will mot come into picture because they will be getting the money of USD 500 from your city bank so it is not the person who is giving you the benefit.
It is your Citibank credit card company which is giving you a benefit or credit facility so, the Citi bank credit card ledger is credited by the amount of USD 500 or INR 22000! and the travelling expenses is debited!
The Citibank credit card ledger is created under current liability of sundry creditors for expenses as per user’s choice.
Similarly all expenses are booked from the statement of credit card and when the payment was issued, the Citi Bank Credit card ledger is debited and the bank through whom the payment issued is credited!
As explained above, I trust now it will be easy to book Credit Card expenses in Tally and accountancy.
Is your company, using Credit card for payment of expenses ? and if your company is using personal Credit card of your company’s directors and partner’s than how are you booking such expenses in your company Account ? Do share with us Credit Card expenses made by personal card of management?