When recording credit card purchases, you need to account for the expenses incurred and the liability created since the credit card company will be paid later. Here’s how you do it.
Explanation
When you make a purchase using a credit card, you recognize the expense and simultaneously create a liability to the credit card company.
Journal Entry Example
Let's assume your business made a purchase of office equipment worth ₹15,000 using a credit card.
Date: [Current Date]
Particulars:
| Account Title | Debit (₹) | Credit (₹) |
|---|---|---|
| Office Equipment | 15,000 | |
| Credit Card Payable | 15,000 |
Explanation:
- Office Equipment: This account is debited to reflect the acquisition of the equipment.
- Credit Card Payable: This account is credited to recognize the liability to the credit card company.
Payment of Credit Card Bill
When you pay the credit card bill, the entry would be:
Date: [Payment Date]
Particulars:
| Account Title | Debit (₹) | Credit (₹) |
|---|---|---|
| Credit Card Payable | 15,000 | |
| Cash/Bank | 15,000 |
Explanation:
- Credit Card Payable: This account is debited to reduce the liability.
- Cash/Bank: This account is credited to reflect the outflow of cash or reduction in the bank balance.
