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Mastering Credit Card Payments in QuickBooks Online: A Comprehensive Guide

Let’s cut to the chase: entering credit card payments in QuickBooks Online (QBO) accurately is crucial for maintaining pristine financial records. You essentially have two primary scenarios: recording credit card expenses and recording customer credit card payments received. For credit card expenses, you’ll typically use the “Expense” or “Bill” feature, assigning the payment to the relevant expense account and specifying your credit card account as the payment method. For customer payments made via credit card, you’ll use the “Receive Payment” feature linked to the invoice, choosing a clearing account (like “Undeposited Funds”) before depositing the funds to your actual bank account once they clear. We’ll dive into the nuances of each method and more throughout this guide.

Recording Credit Card Expenses: The Foundation of Accurate Tracking

This is where you track what you spend on your business credit card. The key is to accurately categorize these expenses.

Method 1: Using the “Expense” Feature

This method is suitable for recording individual, one-off expenses.

Navigate to “+ New” in the top left corner and select “Expense.”
In the “Payee” field, enter the name of the vendor where you incurred the expense.
Choose the credit card account from the “Payment account” dropdown menu. This is critical. If you haven’t set up a credit card account, you’ll need to do that first (more on that in the FAQs!).
Enter the date of the transaction.
In the “Category” column, select the appropriate expense account (e.g., “Office Supplies,” “Advertising,” “Travel”). Be meticulous here!
Enter a description of the expense.
Enter the amount of the expense.
If applicable, attach a copy of the receipt for record-keeping. This is always best practice!
Click “Save and close” or “Save and new” to record the transaction.

Method 2: Using the “Bill” Feature (When a Bill is Involved)

If you receive a bill from a vendor before paying with your credit card, use the “Bill” feature.

Navigate to “+ New” and select “Bill.”
Enter the vendor’s name.
Enter the bill date and the due date.
In the “Category details” section, enter the expense account(s) and corresponding amounts.
Click “Save and close” or “Save and new” to record the bill.
When you pay the bill, go to “+ New” and select “Pay bills.”
Select the bill you want to pay.
Choose your credit card account from the “Payment account” dropdown menu.
Enter the payment date.
Click “Save and close” to record the payment.

Method 3: Bank Feed Automation

QBO’s bank feed is a powerful tool for automating this process. Connect your credit card account to QBO, and transactions will automatically appear in your “Banking” section. You can then match these transactions to existing entries or create new ones. This method significantly reduces manual data entry. However, always review the transactions to ensure correct categorization.

Recording Customer Credit Card Payments: Handling Incoming Funds

This process involves a slightly different approach, using a clearing account as an intermediary.

The Importance of “Undeposited Funds”

When a customer pays you via credit card, the funds don’t go directly into your bank account. They first go through a payment processor (like Stripe, Square, or PayPal) and then are deposited into your bank account, often with processing fees deducted. The “Undeposited Funds” account serves as a temporary holding place for these funds.

Step-by-Step Guide to Recording Customer Payments

Create the Invoice: First, create and send an invoice to your customer as usual.
Receive Payment: When the customer pays via credit card, go to “+ New” and select “Receive Payment.”
Select the customer’s name.
Select the invoice the payment applies to.
In the “Payment method” dropdown, choose the specific credit card type (e.g., Visa, Mastercard). If it’s through a third-party processor, you can create a payment method named “Stripe” or “Square.”
Important: In the “Deposit to” dropdown, select “Undeposited Funds.” Do not select your bank account directly.
Enter the amount the customer paid.
Click “Save and close.”
Record the Bank Deposit: Once the funds are deposited into your bank account (typically a few days later), go to “+ New” and select “Bank Deposit.”
Select the bank account where the funds were deposited.
In the “Add funds to this deposit” section, select the payment(s) from “Undeposited Funds” that are included in the deposit.
Account for Fees: This is crucial! If the payment processor charged fees, create a new line item in the deposit. In the “Account” column, select your “Bank Fees” or “Credit Card Processing Fees” expense account. Enter the fee amount as a negative number. This reduces the deposit amount to match the actual amount deposited into your bank account.
Click “Save and close.”

FAQs: Your Questions Answered

Here are 12 frequently asked questions that will address many common scenarios.

How do I create a credit card account in QuickBooks Online?

Go to “Accounting” in the left navigation menu, then “Chart of Accounts.” Click “New.” In the “Account Type” dropdown, select “Credit Card.” Give the account a name (e.g., “Visa Business”). Click “Save and close.”
What happens if I accidentally record a credit card expense to the wrong expense account?
Find the transaction (using the search function or by navigating to the credit card account register). Click on the transaction to open it. Correct the “Category” (expense account) and click “Save and close.”
How do I reconcile my credit card account in QuickBooks Online?
Go to “Accounting” then “Reconcile.” Select your credit card account. Enter the ending balance and ending date from your credit card statement. QuickBooks Online will then help you match transactions to your statement. Any discrepancies need to be investigated.
My bank feed shows duplicate credit card transactions. What should I do?
Carefully review each transaction. If you’ve manually entered a transaction and it’s appearing in the bank feed, exclude the bank feed entry. If you’re unsure, consult your credit card statement.
How do I handle cash back rewards from my credit card?
Treat cash back rewards as a reduction in expenses. When you receive the cash back, record it as a credit to the expense account most commonly used with that credit card (e.g., if you use the card mostly for office supplies, credit the “Office Supplies” expense account). Alternatively, you can create an “Other Income” account specifically for cash back rewards.
How do I record a credit card payment I made to pay down my credit card balance?
This is a transfer of funds between two of your accounts (your bank account and your credit card account). Go to “+ New” and select “Transfer.” Choose your bank account as the “Transfer Funds From” account and your credit card account as the “Transfer Funds To” account. Enter the amount and date and click “Save and close.”
Can I import credit card transactions into QuickBooks Online?
Yes, you can import transactions from a CSV, QFX, or OFX file. Go to “Banking” and then “Upload transactions.” Follow the on-screen instructions.
What if I paid for something with a combination of credit card and cash?
Record the portion paid with the credit card as a normal credit card expense. Record the portion paid in cash as a separate expense, using your “Cash” account as the payment account.
How do I handle credit card interest charges?
Record the interest charges as an expense, using an “Interest Expense” account. This is important for tracking your true cost of borrowing.
What’s the best way to handle refunds I receive on my credit card?
When you receive a refund, record it as a negative expense against the original expense category. This will reduce your overall expenses.
I use multiple credit cards for my business. How should I organize them in QuickBooks Online?
Create a separate credit card account in QuickBooks Online for each physical credit card. This allows you to track each card’s activity independently and reconcile them easily.
My customer paid with a credit card through a third-party processor, but the fees are different from what I expected. How do I adjust the deposit?
When recording the bank deposit from “Undeposited Funds,” carefully review the fees charged by the payment processor. Adjust the “Bank Fees” or “Credit Card Processing Fees” line item to reflect the actual fees deducted. If the difference is significant or frequent, review your agreement with the processor to understand the fee structure.

By mastering these techniques and paying close attention to detail, you can ensure that your credit card transactions are accurately recorded in QuickBooks Online, leading to a clearer understanding of your business’s financial health. Remember, accuracy is paramount. Consult with a qualified accountant if you have complex transactions or need further assistance.