And Professional Tips On How To Use Credit Cards With QuickBooks Online
Why Use A Credit Card?
Entrepreneurs and Small Businesses alike should use Credit Cards for as many business transactions as possible. Unless the vendor is providing a cash discount or requires check / ACH withdrawal, then you should use a Credit Card.
The common advantages to using a Credit Card over a Debit Card are discussed here in our article on Invested Wallet (an awesome website for personal finance and investing articles).
Don’t have time to read the full article? The advantages of using a Credit Card over a Debit Card in a nutshell are:
Points!
Points are earned for every dollar spent that can be redeemed for Cash Back and other goodies.
Financial Security
Fraudulent activity on a Credit Card is normally refunded where as fraudulent activity on a Debit Card directly accesses your cash which may not be refunded by your bank.
Build and Maintain a Credit History
You may need loans, access to utilities, or other financial assistance that can be impacted by little to no Credit History.
Maintaining a good Credit Score is also incredibly important. Tips to a good Credit Score are also in the article.
Before We Get Started… REMEMBER THIS!
Pay off your balance every month. Do not use the Credit Card to buy things you cannot afford (unless you are specifically using the card as a short term financing vehicle).
Sole Proprietors and Credit Cards
Many Entrepreneurs and Small Businesses choose to file their business activities as a Sole Proprietor instead of an LLC. That’s fine even though we highly recommend registering as an LLC.
As a Sole Proprietor, do not blur the lines between your personal and business life. Putting business transactions on your personal credit card is completely legal. However this is entirely annoying for anyone, including yourself, keeping track of your books.
Spending extra time every month to separate out your business transactions from your personal transactions is an absolute waste of time. Take the extra second with every transaction you make to confirm you are using the appropriate Credit Card instead of spending hours going through transactions.
Get a checking account for your business. Get a credit card for your business.
Yes, getting a Credit Card for your business will “ping” your Credit Score. However this is incredibly negligible and should not negatively affect you in the slightest. Use a Debit Card if you know yourself to have terrible credit.
Using separate checking and credit card accounts for your business activities will help you save time processing transactions and provide a clearer snapshot into your business.
Also, god forbid you were to be audited, any cash back received from your business purchases is considered income for your business. You could theoretically owe taxes on this money should you ever be audited.
Getting A Credit Card
You may be wondering, “Can I get a business credit card for a new business?”
The answer is yes! As long as you have a good personal credit history, you can get a credit card for a business. You do not have to have business credit in order to get a business credit card.
Similarly if you’re wondering, “How do I build credit for my LLC?”, it is as simple as getting a business credit card.
Once you have a business credit card and are paying it off accordingly, you will be amazed at how many credit card offers you receive in the mail!
QuickBooks and Credit Cards
Syncing your Credit Card with QuickBooks allows for several advantages:
Automatically Downloaded Transactions
Syncing your Credit Card with QuickBooks allows for your transactions to be downloaded automatically into the bank feed. You no longer have to type in each transaction manually.
Each time you categorize and add a transaction, QuickBooks searches for similar transaction to auto-suggest they be categorized the same way. This is an incredibly useful tool that will help you save time and maintain accuracy over the long run.
Better Visibility for Bank Reconciliations
Separating out transactions onto your Credit Card gives you the added bonus of making your bank reconciliations go faster.
It is very important to reconcile your checking accounts and credit cards on a monthly basis. This means that you are confirming that every transaction in QuickBooks is accurate and the amount of money on your books is correct.
Debit Card transactions cause extra transactions in the bank register that could have otherwise been on the Credit Card. The bank register can be more difficult to reconcile as there are a number of other transactions that must be matched appropriately. These transactions, such as when an invoice was paid, can be off by a day or two and can throw off the reconciliation. Extra Debit Card transactions in the bank register just complicates this process.
Reconciling a Credit Card is typically more straight forward than the bank register as it is mostly just expenses put on the credit card that need to be reconciled.
Save yourself time by using a Credit Card instead of a Debit Card.
QuickBooks Pro Tips
Doing your own bookkeeping? Here are a few pro tips to help you account for credit card payments in QuickBooks Online.
Matching Credit Card Payments to Checking Account
One of the most complicated aspect of reviewing / approving downloaded transactions in the bank feed is properly adding Credit Card payments.
Why is there such an issue? Good Question!
The Credit Card payment is the only dollar amount that will be exactly the same as on the bank register. Think about it. Any purchase on your Credit Card never shows up on your bank statement. Only when you pay off your Credit Card do you see that amount withdrawn from your checking account and posted as a payment on your Credit Card statement.
Since QuickBooks is downloading all transactions from your checking account and your Credit Card, we have to tell it that these two transaction are related to one another.
Essentially we have to TRANSFER one of the transactions and MATCH the other.
Never “add” a Credit Card payment. Only TRANSFER and MATCH.
Steps to Transferring and Matching Credit Card Payments:
Go to “Banking” on the left hand navigation
Select your Checking Account
Under “For Review” find the payment to your Credit Card
Click in the middle of the transaction line so that it expands downward with more options
Select “Transfer”
Select your Credit Card Account
Click the green “Transfer” button
Scroll up and go to your Credit Card’s downloaded transactions
Find the Credit Card Payment. It should say “Match”
Click in the middle of the transaction so that it expands downwards showing more information.
Confirm the Credit Card payment is matched to the transfer from your checking account
Click “Match” on the right
This is one of the more complicated steps to bookkeeping. Please let us know if you need any help.
Categorizing Cash Back as Income
Getting Cash Back on your Credit Card is technically considered income. Dumb right? We Know. We hate it too.
Here’s how to Categorize Cash Back:
Go to “Banking” on the left hand navigation
Select your Credit Card
Under “For Review” find the cash back on your Credit Card
Click in the middle of the transaction line so that it expands downward with more options
Click on the drop-down menu to Select Category
Scroll up to the top of the options and click “+ Add new”
Account Type > “Other Income”
Detail Type > “Other Miscellaneous Income”
Name > “Cash Back from Credit Card”
Click “Save and Close”
Click “Add”
Separate Cards w/ Limits
Another benefit to using Credit Cards in your business is that you can get cards for your employees.
If you have employees that are making company purchases, this sure beats the heck out of having them submit receipts and then paying them back with cash. Not only do you get the points on all of those transactions, but you save the time and hassle from having to reimburse them.
Another huge benefit to giving your employees a Company Credit Card is that you give each card a Credit Limit. If you know that employees will only be spending a certain amount of money per month, give them an appropriate Credit Limit so that you do not have to worry about them making excess transactions. Any transactions over their designated Credit Limit will be reported.
One note on the Credit Limit is that you will have a bit of a balancing act with the Credit Limit. Let’s say the card has a $10,000 limit. Each employee cannot have a $10,000 limit. Assuming you have 4 employees, each employee could have a $2,500 limit. You could also break out the Credit Limits however you see fit to your employees as long as the total equals your account’s Credit Limit.
You can also setup Purchase Alerts and be alerted every time a purchase is made. This can give you excellent visibility into your company’s purchases and even timing of events.
Emergency Financing
Another benefit to having a Business Credit Card is that it can be used for emergency financing purposes.
If you are tight on cash, can’t get a loan, and need to pay bills, then you can use your credit card as long as you have not maxed it out.
This option is obviously for emergency situations since Credit Cards come with very high interest rates. Ideally you will have another line of credit that you can access instead of tapping into your Credit Card.
Worst case, the Credit Card is there for you to put purchases on.
Credit Cards We Recommend
If you are just starting out with Credit Cards, we always recommend having a Credit Card with no annual fee. Unless you plan on spending a boat load of money on your Credit Card, the extra points you’ll earn on a card with an annual fee may not outweigh the cost of the annual fee.
Note: review the credit card offers as offers may change or include certain exclusions.
The 2019 Top 3 Credit Cards We Recommend For Small Businesses and Entrepreneurs
Our favorite Credit Card for starting a business.
Bonus
$500 bonus cash back after you spend $3,000 on purchases in the first 3 months after account opening.
Points
5% cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable and phone services each account anniversary year.*Same page link to Offer Details
2% cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year.*Same page link to Offer Details
1% cash back on all other purchases–with no limit to the amount you can earn.*
A solid choice. Just not as solid as the Chase Ink.
Bonus
Earn a one-time $200 cash bonus once you spend $3,000 on purchases within the first 3 months from account
Points
1.5% cash back and you could be putting thousands of dollars back into your business. Redeem at any time with no minimums.
Great card if you have an Amazon Prime Membership.
Bonus
Get a $100 Amazon.com Gift Card† upon approval for the Card. Eligible Prime members get a $125 Amazon.com Gift Card† upon approval for the Card.
Points
5% back or 90 day terms on purchases at Amazon Business.
2% back at U.S. restaurants, U.S. gas stations, and on wireless telephone services purchased directly from U.S. service providers.
1% back on other purchases.
Want More Info?
Want More Info On The Benefits Of A Credit Card Over A Debit Card? Check out our article on Invested Wallet about the pros and cons of using Credit Cards and Debit Cards.
Good Luck!
Good luck on your Credit Card journey.
Remember the following:
Pay off your Credit Card balance monthly
Cash Back is considered income
Have a Business Credit Card that is separate from your Personal Credit Card