In this article we will provide the information related to the how to pass journal entries for credit card. Understanding credit cards is essential to grasp the journal entries related to them.
Credit cards are widely used for payments in the USA, European countries, and are gaining popularity in India.
They serve as a means to pay for products and services, offering several advantages.
WHEN YOU GET A LOAN THROUGH A CREDIT CARD
When you avail of a credit card and it grants you a credit limit:
Bank Fund Under Credit Card Account (Asset) Debit
Credit Card Payable Account (Liability) Credit
This entry reflects the funds available for your use as an asset on the debit side and as a liability on the credit side, as it’s not in your savings account but is a loan you can use.
WHEN YOU PAY ANNUAL FEES ON YOUR CREDIT CARD FACILITY
When you pay the annual fees associated with your credit card:
Credit Card Service Charges Account (Expense) Debit
Savings Bank Account Credit
This entry records the expense of annual fees on your credit card, with the amount debited from your account.
WHEN YOU PURCHASE GOODS THROUGH A CREDIT CARD
When you make purchases using your credit card:
Purchase Account/Expenses/Creditor Account (Expense) Debit
Bank Fund Under Credit Card Account Credit
This entry is used when you buy products or services with your credit card. It debits the expense or creditor account and credits the bank fund under the credit card account.
WHEN YOU MISS A CREDIT CARD PAYMENT
If you fail to make a credit card payment on time:
Bank Fund Under Credit Card Account (Asset) Debit
Purchase Account/Expenses/Creditor Account Credit
This entry reflects a bounced credit card payment, with the asset account debited and the expense or creditor account credited.
 WHEN YOU PAY YOUR CREDIT CARD BILL
When you settle your credit card bill, including interest and other charges:
Credit Card Payable Account Debit
Credit Card Interest + Other Charges Account Debit
Savings Bank Account Credit
This entry is used when you make a payment for your credit card bill, including interest and additional charges. It debits both the credit card payable account and the interest and charges account, while crediting your savings bank account.
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WHEN YOU WITHDRAW CASH AGAINST YOUR CREDIT CARD
When you withdraw cash against your credit card when your savings account balance is insufficient, after deducting the credit card payable amount and charges:
Cash Account (Cash from FD) Debit
Credit Card Payable (Payments of credit card done on your behalf) Debit
Fixed Deposit in Bank Credit
This entry reflects the cash received from your fixed deposit, the payments made on your behalf for the credit card, and the reduction of your fixed deposit balance.