Tax Prep by Deb Posted September 4, 2007 Report Share Posted September 4, 2007 How would you handle this? I'm doing bookkeeping for a business who has taken out a credit advance on their credit card and loaned it to their business. I am trying to imput it in such a way so that it tracks through the credit card account, (this way I can reconcile the statement each month) but I originally set it up as a long term liability. When I post the payment it will credit the credit card account but does nothing in reducing the long term liability. Am I missing something or am I hoping for the impossible? Has anyone had experience in handling advances on credit cards in this way? Thanks for any imput! : :rolleyes: Quote Link to comment Share on other sites More sharing options...
OutWestTax Posted September 4, 2007 Report Share Posted September 4, 2007 Let me make sure I've got this straight. This was a cash advance on a Personal card loaned to the Corp. Do I understand the Corp is paying the credit card? If so, the Corp books would show a payment to the Long term liability account. The Personal credit card should not even be in the Corp books. If, as so often happens, the personal card is use for Corp expenses also, the shareholder should turn in the expenses for reimbursement under an accountable plan. The Corp then reimburses the shareholder who then pays the credit card bill personally. The other option, not so clean, put the credit card on the books. Don't record the cash advance as a loan, just a charge on the credit card. Code the personal expenses to distributions, and pay the card in the Corp. Again, this is muddy and can cause problems. One such problem is that when the shareholder loaned money to the corp, the basis would increase. In the second option, the basis may not. Let alone the co-mingling of personal and corporate activities. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted September 4, 2007 Report Share Posted September 4, 2007 How would you handle this? I'm doing bookkeeping for a business who has taken out a credit advance on their credit card and loaned it to their business. I am trying to imput it in such a way so that it tracks through the credit card account, (this way I can reconcile the statement each month) but I originally set it up as a long term liability. When I post the payment it will credit the credit card account but does nothing in reducing the long term liability. Am I missing something or am I hoping for the impossible? Has anyone had experience in handling advances on credit cards in this way? Thanks for any imput! : Deb, Is this a sole proprietor? If so, are there any other expenses on that card? If the card has no other charges that are personal to the owner, set it up as a credit card in QB, and just post the payments and interest charges to it . If the card is being used for mixed purposes (business and personal) it will make the interest calculation manual at tax time, but I would still set it up as a business credit card, post all the transactions, and show the personal ones as owner distributions. If it is a corporation and there is personal uses, I would shy away from the credit card showing up on the balance sheet and record a loan from the shareholder and document it. Have the corp pay the shareholder and the shareholder pay the credit card. My 2 cents. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted September 4, 2007 Author Report Share Posted September 4, 2007 Thanks to both of you! Yes it is a corp and unfortunately the client has used it for mixed purposes. Unfortunately this is one of those clients who does not think I know anything and when I try to explain it she comes back with hunny I've had corporations for years! Which I find out goes way back and nothing in the lat 20 - 25 years. I have yet to understand why she formed a corporation anyways, for the past several years it was a partnership. I will definitely try and explain to her again, the need to keep things separate. I agree that any business expenses should be written as a reimbursement and then she pay the credit card with her personal account, but it is just soooooo much easier writing one check. Again thanks for the quick reply! Quote Link to comment Share on other sites More sharing options...
OutWestTax Posted September 4, 2007 Report Share Posted September 4, 2007 Ah, the incorporated checkbook! Let's see, what are the potential problems? Depends on the mood of the IRS auditor but let's see... How about reclassifying those payments as disguised payroll, with payroll taxes not paid, penalties for 3 years of this stuff. Sweeet... No, let's look for the receipts on those expenses charged on the personal card. Bet he doesn't have them and a recent court case ruled the statement alone as insufficient evidence. Little more taxable income if you please. (True, could be done on corp card also, but a personal card has a higher likelyhood of missing receipts or support). Sometimes I tell clients once you stir personal and corporate into the same soup, the IRS will want to tax the whole bowl. And the taxpayer gets stuck with separating the tomato sauce from the chicken broth. Good luck! Quote Link to comment Share on other sites More sharing options...
Laurie P Posted September 5, 2007 Report Share Posted September 5, 2007 How would you handle this? I'm doing bookkeeping for a business who has taken out a credit advance on their credit card and loaned it to their business. I am trying to imput it in such a way so that it tracks through the credit card account, (this way I can reconcile the statement each month) but I originally set it up as a long term liability. When I post the payment it will credit the credit card account but does nothing in reducing the long term liability. Am I missing something or am I hoping for the impossible? Has anyone had experience in handling advances on credit cards in this way? Thanks for any imput! : Hi Deb, What I do in this situation if first of all I do not setup as a credit card in QuickBooks unless it is a company credit card. I create a bank account called 3rd party payments. Then, I enter the credit card charges that are business as a write check using the 3rd party as the cash account. I have clients during the year enter charges for business that were paid personally. At year-end, I move the balance to the approriate account i.e. reduction of loans, draws, etc depending on the type of entitiy and the situation. This method allows the detail to show up in your vendor reports so you can see who was charged, etc. It works clean for the clients I have trained this way. It also keeps them out of trying to do JEs which they normally would get mixed up. I hope this helps. Laurie Quote Link to comment Share on other sites More sharing options...
Laurie P Posted September 5, 2007 Report Share Posted September 5, 2007 Deb, Is this a sole proprietor? If so, are there any other expenses on that card? If the card has no other charges that are personal to the owner, set it up as a credit card in QB, and just post the payments and interest charges to it . If the card is being used for mixed purposes (business and personal) it will make the interest calculation manual at tax time, but I would still set it up as a business credit card, post all the transactions, and show the personal ones as owner distributions. If it is a corporation and there is personal uses, I would shy away from the credit card showing up on the balance sheet and record a loan from the shareholder and document it. Have the corp pay the shareholder and the shareholder pay the credit card. My 2 cents. Tom Lodi, CA Tom, Just my 2 cents on this...I do not think you have an option not to setup the credit card as a liability on the books if it is in the company's name. Any personal charges, depending on the type of entitiy would be charged against distributions, draws, or maybe to reduce a SH loan balance. Just my thoughts. Laurie Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted September 5, 2007 Report Share Posted September 5, 2007 Tom, Just my 2 cents on this...I do not think you have an option not to setup the credit card as a liability on the books if it is in the company's name. Any personal charges, depending on the type of entitiy would be charged against distributions, draws, or maybe to reduce a SH loan balance. Just my thoughts. Laurie I appologize for my unclear post. I should have said "if the card is in the name of the owner and the organization is a corporation and there is mixed use, I would shy away from putting the CC on the balance sheet." My point was (1) if the entity is a proprietor, and the card is in the owners name, I have no issue with putting it on the BS and recording each transaction as either an expense or capital draw, (2) if the entity is a corp and the card is in the owners name, but strictly used for business purposes, I have no issue putting it on the balance sheet, and (3) if the entity is a corp and the card is in the name of the owner but is mixed use, I prefer not to put the card on the balance sheet, opting for recording the business transactions from the card usage as a transaction between the owner and the corporation. My assumption was always that the card was in the name of the owner, and I was approaching the question from that assumption. That is the problem with quick answers to questions, we sometimes think that what we think we said(or typed) is what will be understood. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted September 5, 2007 Author Report Share Posted September 5, 2007 Tom, Your assumptions were correct, and your point well taken. That's why I posted the question here instead of on QB site. I find everyone here so much more informed even on Quickbooks than most poster on Quickbooks site. You guys and gals are definitely quicker to respond. Last year I had a simple question that I posted on Quickbooks site and it took me over a week to get any response at all and then when I did they needed more info. By that time I had already figured it out, (what I asked for couldn't be done) and moved on. It's always amazing how a question such as this can get everybody in the loop. A person can learn a lot of info by reading these posts. This past tax season one of my computer's (my dad's, who also works with me) was barely moving. It had slowed down so much that he could'nt use it to do taxes with. I showed him how to research posts on the old forum and he found a suggestion that he tried and it worked so well that he too was extremely disappointed at hearning that the old forum was unplugged. He hasn't had a need as of yet to research or post anything on this board but I know he will find it just as helpful as I have. Again thanks all! :P Quote Link to comment Share on other sites More sharing options...
taxxcpa Posted September 5, 2007 Report Share Posted September 5, 2007 How would you handle this? I'm doing bookkeeping for a business who has taken out a credit advance on their credit card and loaned it to their business. I am trying to imput it in such a way so that it tracks through the credit card account, (this way I can reconcile the statement each month) but I originally set it up as a long term liability. When I post the payment it will credit the credit card account but does nothing in reducing the long term liability. Am I missing something or am I hoping for the impossible? Has anyone had experience in handling advances on credit cards in this way? Thanks for any imput! : The proper accounting would be to set up the loan: Debit Cash $XXXX Credit Note Payble to the Owner $ XXXX To repay the loan: Debit Note Payable to the Owner Credit Cash To pay expenses with the money received from the loan: Debit Expense or Asset account Credit Cash When the Owner pays his credit card, there should be no entry on the books of the business. Of course, if the credit card were in the name of the business, it would be different, but that is not the situation as I understand from your question. Quote Link to comment Share on other sites More sharing options...
MJG CPA Posted September 11, 2007 Report Share Posted September 11, 2007 Sometimes I tell clients once you stir personal and corporate into the same soup, the IRS will want to tax the whole bowl. And the taxpayer gets stuck with separating the tomato sauce from the chicken broth. I LOVE that analogy! Mind if I use it?! Quote Link to comment Share on other sites More sharing options...
OutWestTax Posted September 11, 2007 Report Share Posted September 11, 2007 Be my guest. Quote Link to comment Share on other sites More sharing options...
Laurie P Posted September 12, 2007 Report Share Posted September 12, 2007 I appologize for my unclear post. I should have said "if the card is in the name of the owner and the organization is a corporation and there is mixed use, I would shy away from putting the CC on the balance sheet." My point was (1) if the entity is a proprietor, and the card is in the owners name, I have no issue with putting it on the BS and recording each transaction as either an expense or capital draw, (2) if the entity is a corp and the card is in the owners name, but strictly used for business purposes, I have no issue putting it on the balance sheet, and (3) if the entity is a corp and the card is in the name of the owner but is mixed use, I prefer not to put the card on the balance sheet, opting for recording the business transactions from the card usage as a transaction between the owner and the corporation. My assumption was always that the card was in the name of the owner, and I was approaching the question from that assumption. That is the problem with quick answers to questions, we sometimes think that what we think we said(or typed) is what will be understood. Tom Lodi, CA Hi Tom, I think this board and great and I myself sometimes post too soon if I am in a big hurry. I enjoy reading your posts and insights and support! Thanks, Laurie Quote Link to comment Share on other sites More sharing options...
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