working · Lesson 8 · 8 min
Credit cards, loans, and the rest of cash
A credit card is a liability with a feed, not an expense account. Loans are the same idea with a principal/interest split.
Dotted words have a reminder. Hover on a computer, tap on a phone.
From earlier
- QBO
- AP
- drawings
Credit cards
Add the card as a bank account in Xero (type that behaves like a liability) or a Credit Card account in QBO. Feed on, rec every statement. Purchases credit the card (increase the liability) and debit expense/asset. The monthly payment is a transfer: debit card, credit checking. Coding the payment to expenses double-counts every swipe.
Loans
Drawdown: debit bank, credit loan liability. Each repayment splits: debit loan (principal), debit interest expense, credit bank. Use the lender’s amortization schedule, not a guess. If you expense the whole payment, the loan never shrinks on the balance sheet and profit is too low.
| Account | Debit | Credit |
|---|---|---|
| 2500 Equipment loan (liability) | $380.00 | |
| 6550 Interest expense | $60.00 | |
| 1000 Checking | $440.00 | |
| Totals | $440.00 | $440.00 |
Petty cash and owner cards
Petty cash is a small bank/asset you rec to receipts. Personal cards used for business: either the owner submits expenses (reimburse: debit expense, credit bank or AP to owner) or you rec a dedicated feed and draw the owner for personal spend. Mixing personal groceries into Fuel because “it’s all the card” destroys both tax and management reports.
Check
Choices shuffle each visit. Misses send you back to the section. Look back clears the quiz so you can try again. Practice drills deal a new problem on try-again.
Choose an answer, then check.
This try
Paying the credit-card statement from checking is: