Using Credit Cards can be a little tricky from a financial accounting perspective. However, there is a process that you can follow that will let you accurately track your payments you make with a credit card, while still associating a these payments with the appropriate vendors, and then separately show paying off your credit card at the end of each billing period. In this article, we'll take a look at this process, step-by-step.
First, you'll want to make sure that you've established a liability account for your credit card, and you've designated that account as being a charge account. When you create the account, make sure to check off the "This is a charge account" box. If the card currently carries a balance when establishing the account, make sure to enter that balance in the "Beginning Balance" box.
Once the account is established, you're ready to start entering payments for this credit card. We can do this through a "Charge Account Payment". When entering your charge account payment, you'll select the liability account you created when selecting which account use for this payment, and then you'll charge it against either the expense or dedicated account that this would be charged to, if you were paying this transaction through a check, or debit card. You'll also be able to select the vendor you're paying at this point.
When you make this kind of payment, instead of being deducted from a bank account, it instead will be added to the balance of the liability account you created. This represents the balance you have on this Credit Card. This will let you know, when you're ready to pay your credit card bill, what the principal balance is for this card.
When you are ready to pay your credit card bill, you can create a check (if you're paying this credit card bill by check) or as an EFT (if you're paying this bill electronically) to pay off the credit card company. In this case, you'll pick the bank account you're paying the credit card bill out of, and then you'll select the Credit Card liability as the offset account. This will reduce both the balance on the Credit Card liability and the Bank account. Only the principal payment should go against the credit card liability. If there is any interest being paid off, that should be entered as an expense on the same transaction in a separate line item.