How to account for a Year End credit card balance
Note: this article only applies to organisations that prepare accounts on an accruals basis, as accounts prepared on a Receipts & Payments basis don't include Accounts Payable transactions.
Often at year-end, your credit card account will have an outstanding negative balance.
Rather than treat this as negative cash, because the credit card bill hasn't yet been paid, some Independent Examiners prefer this to be classified as an Accounts Payable creditor.
This article will guide you through making the adjustments in ExpensePlus to reclassify your year-end credit card balance as an Accounts Payable creditor.
Top Tip: For more information on Accounts Payable creditors, check out our blog on creditors and debtors.
Important: this article will refer to the year for which the accounts are being prepared as the reporting year, and the following year (when some reversing entries also need to be added) as the following year.
What adjustments need to be made in ExpensePlus relating to the end of the reporting year?
Top Tip: You can add these adjustments after the reporting year has ended This will probably be necessary given you most likely won't know the balance of the credit card until after the year has finished.
You need to add two adjustments relating to the end of the reporting year, as follows:
- Increase the credit card balance to 0, by manually uploading a paid in transaction to your credit card account for the balance of the account. E.g. if the balance was -£1,328.46, you'd manually upload a paid in transaction for £1,328.46 for the last day of your financial year, which would make the balance at the end of that day (and therefore the end of the financial year) £0.00
After manually adding this transaction, reconcile this as a Supplier Refund to any expenditure category (you might want to create a new "accounting adjustments" expenditure category for this purpose). This will temporarily reduce your reporting year's expenditure, but this will be reversed in step 2.
- Add to your Accounts Payable balance by adding a manual Accounts Payable adjustment for the same amount (£1,328.46 in this example) to the same expenditure category. This will both:
- Increase the expenditure in the reporting year (thus reversing the supplier refund added in step 1
- AND raise the Accounts Payable entry relating to the credit card balance.
What adjustments need to be made in ExpensePlus at the start of the following year?
You then need to make two further adjustments at the start of the following year to re-state your credit card balance, and reverse the accounts payable entry you added in the reporting year.
- Reverse the manual Accounts payable adjustment raised in step 2 - see the lower section of this help article. This will temporarily reduce the expenditure in the following year, but this will be reversed in the following step.
- Reset the credit card balance to its year-end value (-£1,328.46 in this example) by manually uploading a paid out transaction to your credit card account. E.g. if the balance was -£1,328.46, you'd manually upload a paid out transaction for £1,328.46 for the first day of your new financial year.
After manually adding this transaction, reconcile this as a Bank/Processing fee to the same expenditure category you used in step 1. This will reverse the reduction in the following year's expenditure so there has been no net effect.