Using Credit Cards

When you use credit cards to pay for your expenses the payment is recorded as a short-term debt, until it is transfered to your credit card issuer as a credit card invoice when you reconcile the credit card statement.

Every credit card you add is an account in your ledger book. This account is used to track all the invoices and expenses you have paid for with that particular credit card.

When a credit card is added, the credit card account needs to be associated with a supplier account for the credit card issuer (i.e. the bank). This account tracks the credit card invoices you get. When you reconcile a credit card statement, the balance of the credit card account is transferred to the issuer's supplier account.

Before You Can Use a Credit Card

Before you can use a credit card you have to add the credit card to the system. You do that in Financials » Ledger and Accounts » P01 New Account.

It is important to recognise that credit cards refer to credit cards you use, and not credit cards that you accept as payment from your customers. Such credit card payments are referred to as Merchant Accounts, and you should go here to read more about how you can accept credit card payments from customers.

Example

You are adding your MasterCard as a new credit card. The issuer of the card is Standard Bank. When you add the credit card, Standard Bank will be added as a supplier, and the credit card account is associated with this supplier. The next time you add an MasterCard, this card will be associated with the same supplier (i.e. Standard Bank).

How to use a credit card to pay for expenses

When you pay an expense by credit card, you select the credit card used as the payment method for the expense. When you enter the payment, the paid amount will be categorised as a short-term debt on that credit card. When you get the statement from your credit card issuer, you need to reconcile the credit card account with your statement. When you do this reconciliation, the amount will be transferred to the credit card issuer's supplier account. At this time it becomes a debt you have, to the credit card issuer, and the amount is included in accounts payable. The statement from the credit card issuer is then treated as any other invoice you receive.

Reconciling a Credit Card

When you get the credit card invoice from the issuer, you reconcile the account. When you reconcile the account, all the payments you have done with the credit card is matched against the credit card invoice. Go here to read more about reconciling accounts.

Balances on a Credit Card and its Associated Supplier Account

The balance on your credit card is the sum of payments not yet reconciled against a credit card invoice.

The balance on your credit card issuer's supplier account is the sum of all unpaid credit card invoices for that issuer.

Example

In January you pay two suppliers totalling R1000 with your MasterCard, and in February you pay one of R200 with your MasterCard. On February 10th you get a invoice from MasterCard for all payments made in January. When you receive the credit card invoice, the balance payable on the credit card shows R1200 . You reconcile the account, matching both the payments made in January. When you save the reconciliation, these transactions are marked as reconciled and R1000 is transferred, from the credit card to issuer's supplier account. This is posted as a credit card invoice (you can now see it in the supplier invoice list, as an unpaid invoice). When the reconciliation is complete, the balance on your credit card will show that you still owe R200, while the balance on the issuer's supplier account will show that you need to pay them R1000. When the credit card invoice is due for payment, you pay it as any other supplier invoice, and the issuer's supplier account balance will be set to 0.