A credit card belonging to a business or used exclusively for business (such as a personal credit card of a sole trader/proprietor) can be set up in two basic ways in Manager. The options are:
The two approaches are financially equivalent, so both are equally correct. This choice is a matter of personal preference.
Regardless of which option will be used, the credit card account must be created first under the Bank Accounts tab. A credit card account is considered a bank account because it can be used as a medium of exchange and is maintained by a financial institution rather than the business.
Enable the Bank Accounts tab and create the credit card account as described here. You may wish to add custom fields to your bank accounts to record things like account numbers and financial institutions. You can also assign account code numbers to control the order in which accounts are displayed or match them to an overall numbering scheme for your chart of accounts.
The credit card will now be displayed in your Bank Accounts tab along with other bank accounts. Because most transactions will post to this account from Spend money transactions, the account’s balance will usually be negative. Only refunds or payments to the credit card will move its balance in a positive direction.
To set up the credit card as a contra asset account, leave the control account field at the default option of Cash at bank when you create it:
On your Balance Sheet, the balance of the credit card account will reduce the balance of the control account, Cash at bank.
The advantage of the contra asset option is your Summary page and Balance Sheet show at a glance how much cash you have to spend that is not already obligated. The disadvantage is credit card balances are not so visible.
To set up the credit card as a liability account, you must first create a custom control account in your chart of accounts. Give it a name like Current liabilities if you want it to include other short-term obligations. Or just name it Credit cards. Indicate the custom control account is made up of bank accounts:
Go back to the Bank Accounts tab and Edit your credit card account by assigning it to the custom control account just created:
Now, the balance of your credit card account will show under Liabilities on your Balance Sheet:
Notice that while the credit card balance will still show in the Bank Accounts tab as negative, it will appear as a positive number under Liabilities on the Summary page, because Liabilities are automatically subtracted from Assets on that display.
The advantage of the liability option is credit card balances show on your Summary page and Balance Sheet as amounts owed. This may be more useful if you do not always pay off the full credit card statement balance. This option clearly separates what you have (assets) from what you owe (liabilities). The disadvantage is a quick glance at the Summary may suggest you have more unobligated cash than you really do.