Farm Credit Accounts Part I:
The Credit Card Account Type

Before we look at using the Credit Card account type for farm business credit accounts, let's consider the two most common ways credit cards are handled in QuickBooks:

A. Simply write a check each month.

❖When the monthly credit card statement arrives you write a check (or make an online funds transfer, etc.) to make a payment on the balance. ❖If you use the card for farm business purchases, when you enter the check you assign charges to various expense accounts—repairs, supplies, small tools, etc.—in the check's detail area. ❖If you don't pay off the card's entire balance, part or all of the unpaid balance may be a liability of the farm business (the part representing amounts you owe for farm business purchases) and should appear on your balance sheet report...but they won't, because the unpaid balance is not represented anywhere in QuickBooks if you are just entering credit card "expenses" by writing a check. Entering a check to pay a credit card balance, in QuickBooks desktop...

B. Use the Credit Card account type for managing charges and payments.

❖You set up a Credit Card-type account to represent the credit card in QuickBooks. In QuickBooks desktop... Menu commands: Lists > Chart of Accounts > Account [button] > New In QuickBooks Online... Menu commands: [Gear] > Chart of Accounts > New > [choose Category Type] For help with using Credit Card accounts, see Chapter 5 of The QuickBooks Farm Accounting Cookbook™, Volume I: QuickBooks Basics, Income & Expenses, and More.... ❖Throughout the month—or more commonly, after the monthly statement arrives—you enter purchases you have made with the card. (Or you may download transactions directly into QuickBooks if the credit card issuer supports that, saving some of the effort required for entering the transactions manually.) In QuickBooks desktop... Menu commands: Banking > Enter Credit Card Charges In QuickBooks Online... Menu commands: Expenses > New Transaction [button] > Expense ❖After the month's purchases and credits (if any) have been entered in QuickBooks, you can reconcile the account against the monthly statement. Reconciling verifies that you have entered dollar amounts correctly, and helps you find errors—both errors made by you and errors from the card payment network, such as a purchase charged to your account which you did not make. About QuickBooks' Reconcile window... It is not limited to being used for Bank accounts. You can use it to reconcile any balance sheet account—assets, liabilities, and equity accounts. However, it is rarely used for reconciling anything other than financial accounts such as savings accounts, credit cards, and loans. ❖At the end of the reconciling process, QuickBooks can automatically prepare a check to make payment on the card's balance. ❖If you only pay part of what you owe, the remaining unpaid balance will appear on balance sheet reports as a current liability, because the Credit Card-type account you established represents the card's current balance (assuming you have entered all of the purchases you've made with the card).

Just writing a check each month to pay the amount you owe is OK for credit cards used solely for personal spending. But if a credit card (or other credit accounts we will discuss later) is used for farm business purchases, you should be using a Credit Card-type account for working with it in QuickBooks. Here are reasons for using a Credit Card-type account:

❖It lets you keep track of more information about purchases.

The Enter Credit Card charges form in QuickBooks desktop editions, or the Expenses form in QuickBooks Online lets you identify each purchase with a specific vendor. (Entering credit card purchases as details lines on a check does not.) You can get a report showing all transactions with a particular vendor, which can be useful for hunting down errors or problems with an account, or simply when you want to find a particular transaction you've made with a particular vendor.

❖It can simplify recording deductible expenses.

How? If you were just entering checks to make monthly credit card payments, you would need to enter farm expense details on those checks. What will happen then, if you make a payment that is less than the full amount of an expense?

Example:  Suppose you've used a credit card to pay a $1,500 tractor repair bill. When the card's statement arrives, if you make a $30 minimum payment by check you will only be able to deduct $30 of the $1,500 total on that check. Next month, if you pay $75 of the card's balance, you will be able to deduct another $75 of the $1,500 total. And so on—getting large deductible expenses recorded can be difficult and messy with this approach, if you are just making partial payments.

With a Credit Card-type account though, entering expenses is separate from making payments on the card. You would enter the $1,500 expense all at once on the Enter Credit Card Charges form (Expense form in QuickBooks Online)—and in the tax year when the purchase was made, not when you pay the credit card balance. Making a partial payment on the card then, won't delay recording deductible farm expenses that were paid for by credit card.

Farm expenses paid by credit card are immediately deductible...

❖It lets QuickBooks automatically keep track of unpaid balances on credit accounts.

When you enter purchases on the Enter Credit Card charges form in QuickBooks desktop editions, or the Expenses form in QuickBooks Online, they increase the balance in the Credit Card-type account you established to represent the credit card (or other credit account). If you only pay part of what you owe, the unpaid balance in that account will appear on balance sheet reports as a current liability of the farm business.

❖It lets you reconcile the charges you have entered in QuickBooks, against the monthly credit card statement.

QuickBooks's Reconcile window makes it easy to reconcile a Credit Card-type account against the statement. But if you simply write a check each month to make credit card payments, reconciling is a very manual process. This may not seem like much of a problem if you pay off the card's entire balance each month, but if you make partial or advance payments, or dispute a charge, etc., reconciling the account can be a real headache. (That's the point where many people just give up and assume that the credit card company's numbers are correct!)

❖It offers the possibility of downloading credit card transactions into QuickBooks.

Downloading transactions can save time you would have otherwise spent entering them manually. This is especially true after the first few times you've downloaded transactions, because initially QuickBooks must be "trained" to automatically match transactions with the vendor names and expense accounts you typically use, such as repairs or supplies.

Downloading credit card transactions only works if you set up a Credit Card-type account in QuickBooks, to accept the downloaded transactions.

Not all credit card issuers support transaction downloading, but more of them will as time goes by. I am not yet aware of any agriculture-specific credit accounts which let you download transactions, but data interfaces between financial systems are becoming more uniform and standardized, so don't be surprised if someday you can download transactions directly from John Deere Financial, CNH Industrial Capital, or AgriBuy, for example.

Adding downloaded transactions in QuickBooks desktop...

If you want more detail about working with the QuickBooks' transaction matching features, the book Online Banking, Transaction Downloading, and Online Bill Payment in QuickBooks may help. (It is written for QuickBooks desktop editions.)

Point-of-sale credit is credit you obtain on the spot while making a purchase. Credit cards are one of several forms of point-of-sale credit. "Store cards" (like those from Sears or Home Depot) and dealer/vendor credit (open accounts) are two others, as are credit accounts targeted at agriculture and offered by companies like John Deere Financial, CNH Industrial Capital, AGCO Finance, and more than a dozen others—machinery companies, farm input suppliers, and agricultural lenders.

Setting up a Credit Card-type account is a good way to work with some kinds of credit accounts but not all of them, and there are income tax considerations to be aware of. As you will see in Part II of this series, having a shiny plastic card to carry in your wallet is not what determines when using the Credit Card account type is the right thing to do.

Mark Wilsdorf was raised in agriculture, has been deeply involved in it all of his life, and has worked with QuickBooks and accounting software for much of that time as well. He was editor of AgriComp, the first national magazine for agricultural computing, has authored several books about using QuickBooks in agriculture (The QuickBooks Farm Accounting Cookbook™ series), has done consulting work for Fortune-500 businesses serving agriculture, and has been the lead developer on QuickBooks-related software projects, including several QuickBooks add-ons.

If you wanted proof that Mark always has at least one foot in agriculture you might look around his office at home....where you would find things like a folder of soil test reports, calf obstetrical supplies, a seed sample waiting on a germination test, a stack of machinery parts catalogs, and a lariat he will never really learn to use well.

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