Sometimes in your business you will have situations where you will have no other option but to use your personal credit card to make purchases for your business or where you will have employees purchase things for your business on their own personal credit cards. Many company owners are unaware that they can deduct these charges. I will stress, however, that they must only be for business purchases, all personal charges are to be strictly recognized as so.
In recording charges that came from a personal credit card, your owners equity (drawing) account is the account responsible for recording these charges. For example, if you bought a computer on your personal credit card, you would record it into your business account books in this way:
1/1/xx Debit Credit
Office Supplies $1,500.00
OE (drawing) $1,500.00
Memo: to record the purchase of Office supplies on personal credit card
What this in effect does, is records the computer into your books, not affecting cash, but owners equity (drawing). It increases your owners drawing to show an increase in an 'investment' into the business. For any other business type purchases from a personal credit card, the same acount, your owners equity (drawing) is used as the offset account. You should also make sure that any travel, entertainment or meals expenses in which you use a personal credit card for are recorded on your expense report.
Now, what happens when your employees make purchases for your business with their own personal credit cads? This situation requires you to reimburse the employee. A good way to start is to set your employees that will be making reimbursement purchases into your accounts payable account as a vendor. In order to keep them separate from your other vendors, you should set the employee with an astrick * before their name. This will help you separate them out into their own category. In addition, you should have a reimbursement form made up for each employee. Each employee's name will be recorded in your accounts payable as for example, *John Smith. Monthly, your employee will give you a reimbursement form filled out with purchases they made on their own personal credit card. You, in turn will record the expenses for that employee in your accounts payable for that employee, *John Smith. A debit will go to the expenses, thus recording the expenses on your books, and a credit wil go to accounts payable for the employee. Once you pay the employee, your accounts payable will go to zero for the amount of purchase. All has been recorded accurately and the reimbursement has been paid.
Copyright Jeanine Pfeiffer