Journal Entry for Credit Card Purchases

Journal Entry for Credit Card Purchases is Purchase/Expense Account Debit and To Credit Card Payable Account Credit, and when payment of Credit Card Journal Entry is Credit Card Payable Account Debit and Bank Account Credit. When a company makes purchases using a credit card, the entries need to reflect the initial purchase and the subsequent payment of the credit card bill. Below is an example scenario illustrating the necessary journal entries for recording credit card purchases.

Example Scenario

Let’s assume Company A makes a purchase of Stationary worth ₹10,000 using a credit card on 01-07-2024. Later, the company pays the credit card bill on 15-07-2024.

Journal Entries

1. Recording the Purchase on Credit Card

Explanation:

• Stationary Expense Account Debit: Records the expense incurred for office.
• To Credit Card Payable Account Credit: Reflects the liability to be paid to the credit card company.

2. Paying the Credit Card Bill

Explanation:

• Credit Card Payable Account Debit: Reduces the liability as the bill is paid and which is a current liability.
• To Bank/Cash Account Credi: Decreases the cash or bank account reflecting the payment made to the credit card company.

If Charged Credit Card Fees and Interest

If there are additional fees or interest charged by the credit card company, these should be recorded separately.

Example Scenario with Fees

Let’s assume the credit card company charges a fee of ₹200 and interest of ₹300 on the outstanding balance.

3. Recording the Credit Card Fees and Interest

Explanation:

• Credit Card Fees Account Debit: Records the fee charged by the credit card company and which is indirect expense.
• Credit Card Interest Account Debit: Records the interest charged on the outstanding balance and which is a indirect expense.
• To Credit Card Payable Account Credit: Adds the fees and interest to the credit card payable account.

4. Paying the Total Credit Card Bill Including Fees and Interest

Explanation:

• Credit Card Payable Account Debit: Reduces the liability including fees and interest as the bill is paid.
• To Bank/Cash Account Credit: Decreases the cash or bank account reflecting the total payment made to the credit card company.