All lessonsLevel 2 · Lesson 2.12

Level 2 · Lesson 2.1210 minutes

Expenses, credit cards, reimbursements and petty cash

You'll record spending by card and cash, pay back employees and owners for business costs, keep a petty cash fund and pay down the credit card.

  • Principles:
  • Business entity
  • Matching

Card charges

A business credit card is a liability. Each charge raises an expense and what you owe the card company. Paying the card later isn't an expense: it moves money from the bank to the card account.

Journal entrySep 20 Pay the business credit card
AccountDebit (Dr)Credit (Cr)
Business Credit Card$1,742.00
Business Checking$1,742.00
Total Balanced$1,742.00$1,742.00

Are you Increasing or Decreasing?

The T, debit side and credit side
DebitCredit
LiabilityAsset
EquityDraw
RevenueExpense

− To decrease an account, put it on the opposite side.

Business Credit Card goes down: press − and find Liability on the debit side.

The Receipts screen in the Leah Books sample books, for the sample company Evergreen Landscaping (opens the full-size screenshot)
Receipts: each receipt read, recorded and matched to the card or bank charge it belongs to.

Reimbursing an employee

When Tanya buys $64 of fuel with her own card for a company truck, the business owes her. Record the expense with the receipt and pay her back. A reimbursement under an accountable plan, with receipts, isn't wages, so it isn't taxed.

Pay it with a check, or add it to her paycheck as a non-taxable reimbursement.

Journal entrySep 22 Reimburse Tanya for fuel she paid personally
AccountDebit (Dr)Credit (Cr)
Fuel$64.00
Business Checking$64.00
Total Balanced$64.00$64.00

Are you Increasing or Decreasing?

The T, debit side and credit side
DebitCredit
LiabilityAsset
EquityDraw
RevenueExpense

− To decrease an account, put it on the opposite side.

Business Checking goes down: press − and find Asset on the credit side.

When the owner pays a business cost

If the owner pays a business bill from a personal account and the business doesn't pay it back, it's a contribution to equity, not income.

Journal entrySep 24 Owner pays a business software bill personally
AccountDebit (Dr)Credit (Cr)
Software & Subscriptions$39.00
Owner's Investment$39.00
Total Balanced$39.00$39.00

Are you Increasing or Decreasing?

The T, debit side and credit side
DebitCredit
AssetLiability
DrawEquity
ExpenseRevenue

+ To increase an account, put it on its normal side.

Software & Subscriptions goes up: press + and find Expense on the debit side.

Petty cash

A petty cash fund is a small amount of cash kept for small purchases, with a receipt for everything spent. You replenish it by writing a check for exactly what was spent, recording each expense. The fund itself stays the same size.

Formula

Cash in the box + Receipts = The fund amount

Journal entrySep 30 Replenish petty cash: $36 of supplies and $14 of postage
AccountDebit (Dr)Credit (Cr)
Office Supplies$50.00
Business Checking$50.00
Total Balanced$50.00$50.00

Are you Increasing or Decreasing?

The T, debit side and credit side
DebitCredit
LiabilityAsset
EquityDraw
RevenueExpense

− To decrease an account, put it on the opposite side.

Business Checking goes down: press − and find Asset on the credit side.

Recurring expenses

Some costs come out of the bank automatically every month, like phone service or software. Set up a recurring expense so it posts on schedule, or a bank rule so the line is categorized the same way each time.

Try it in Leah Books

  1. Go to Banking > Receipts and upload a receipt photo. Check the vendor, date, total and category, then record it.
  2. Go to Banking > Bank transactions and look for a credit card line. See which account it posts to.
  3. Go to Banking > Recurring expenses and look at how a monthly charge is set up.
  4. Go to Accountant > Manual journals and write the entry to replenish a $50 petty cash fund.

Key terms

Credit card payable
What the business owes on its card. A liability.
Reimbursement
Paying someone back for a business cost they paid personally.
Accountable plan
A reimbursement policy with receipts that keeps reimbursements tax-free.
Petty cash
A small cash fund for small purchases, kept at a fixed amount.
Replenish
Refill petty cash by the amount spent, recording each expense.

Check what you learned

Pick an answer to see if it's right and why. Nothing is saved or sent.

Question 1 of 4You pay the business credit card bill. Which account is debited?
Question 2 of 4The owner pays a $39 business bill personally and isn't paid back. What's credited?
Question 3 of 4Petty cash is $200. Receipts total $50 and $150 is in the box. How much do you replenish?
Question 4 of 4Is a reimbursement with receipts under an accountable plan taxable wages?