How is credit card made
How to record a credit card payment
Credit card accounting is a key activity when credit cards are heavily used within a business.
When a credit card processor submits a credit card statement to a company, the company is essentially being presented with a large invoice that includes many line items for a wide array of purchases. Because the contents of a credit card statement can be so varied, it is difficult to assign a single default charge code to the account (as is done with most other suppliers, who tend to be associated with a small range of purchases). Instead, the accounts payable data entry staff must work their way through each of these statements and manually assign charge codes to each line item, based on the type of expenditure. An alternative is to forward these statements to the card users and have them fill in the required information, though this approach tends to delay the processing of payments.
The accounts payable staff may be supplied with a standard list of accounts to which charged items are assigned, since there seems to be a
fair amount of regularity in the types of items purchased with a credit card. Examples of commonly-purchased items are:
- Travel and entertainment
- Office supplies
- Cost of goods sold
- Office supplies
The offset to the expense entry for any of the preceding items is the accounts payable account.
Once recorded in the accounts payable system, a check payment is eventually made in the amount indicated on the credit card statement (plus or minus any adjustments), where there is a debit to the accounts payable account and a credit to the cash account. The remittance advice is then removed from the statement, attached to the check, and mailed to the credit card processor. The accounts payable staff then attaches a check copy to the remaining portion of the card statement, and files it by month.
The credit card accounting process noted here must be repeated exactly in each month. Otherwise, even a single card statement may contain such a large expense that incorrect processing could notably impact the financial results of an organization.
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