Law firms, like other businesses, often use card purchases for a variety of business expenses.  These cards are often linked to the primary business banking account.  Transactions are debited to the card as they occur, and settled once a month with a bank fund transfer to the card.

Assume a Credit Card used for Business purposes.

The steps below show how this should be processed on DynamicLTA.

Required

We will require the following:

• Open an Current Liability account named “Card Purchases” for the card.  Do not use a cash book for the card.  This Current Liability account is a clearing account and should not carry an opening balance. Eg account number #98001
• The Expense, or Asset account to which the purchase will be allocated. Expense accounts typically start with #91xxx, #92xxx or #93xxx numbers. Assets start with #95xxx or #96xxx accounts numbers.
• In this example we will use account number #98001 as our Card Purchases account.

Note that card related purchases  only affect the business.

When a card purchase is made, the purchase will be supported by a cashier’s slip, and will subsequently reflect on the card statement. In our example  we need to purchase a new kettle for the office. In this example the kettle is treated as an expense.

Process

Process the following transaction:

• Business Journal, debit the “Office Equipment” account, with the amount on the slip, and credit the “Card Purchases” account. In our example the Office Equipment account is #95000.
• This reflects the expense incurred for purchasing office equipment, and a credit for the card purchase – we need to settle the short term credit provided by the card at month end.

At the end of the month, when the settlement transaction takes place, funds will move out of the Business Bank Account, to settle the balance of the card  account. The card account is not a cash book in our system, we only use the Current Liability account named “Card Purchases”.

Process the following transaction:

• Business Cheque against the “Card Purchases” account.  This debit the ledger and update the Business Cash Book.
• After this payment, the “Card Purchases” account should be nil and the Business Cash Book reflect the outstanding settlement on the bank reconciliation.

This is a simplified example.  Typically the bank settlement will be for a larger amount, and include bank charges.  Process this to the normal expense accounts.

It is not necessary to process these transactions manually. Please note that the bank account statement can be imported using Import from CSV. This is not a cash book import. Please see the Import from CSV section in the Help File.

Proceed with the bank reconciliation as usual.

The “Card Purchases” account is a clearing account.  It only serves as a place holder until such time as the card is settled.

-Dynamic