Setup Opening Balance for Liability Account

[Danna Hightower]

Hi, John!

When we did our budget for this year, our credit card liability was recorded as an expense line item so that it could be handled as a budget item. (We realize this was not correct.)

We need to move it to a liability account, where it belongs, so that we can see our outstanding balance on the Balance Sheet.

I was thinking of setting up the liability account with an opening balance back to January, then taking the total outstanding balance of the expense account, which is the equivalent of the payments made to the principal balance, to bring the remaining balance to what is actually reflected on the credit card statement as of this date.

My entries would be a credit to the credit card expense account, bringing it to zero and a debit to the credit card liability account.

Does this sound like the correct way to handle this? If so, do I really need any entries to the Unrestricted Net Asset Account?

My actual problem is, I cannot figure out how to enter an opening balance for the liability account. It is a field that I cannot access. Which leads me to believe I may not be on the right track for "fixing" this!

Can you help?

Thank you!

[JohnDMeyers]

Our credit card is continual source of headaches, mostly because we only have 10 days to pay it after we receive it, and our bookkeeper only comes in once a week, a day or two to get the checks signed and in the mail, and sometimes, we miss the due date. (I just thought I would vent that).

I think what we are doing as far as credit usage, I think that we record an expense by having whoever uses the card to write on the receipt what it was used for so that we can assign it to an expense account:
DB expense account
CR credit card liability.

When the credit card bill is paid, we simply:
CR checking
DB credit card liability

This allows the bookkeeper to quickly pay the credit card bill without having to sort it out and find all the expense accounts. Sometimes, not all the expenses are assigned, so the liability is debited more than the amount of the liability, leaving a negative balance in the liability (happens often).

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Now, concerning your question:

You have been using a single expense account, which is analogous to our liability account.

I would suggest the following:

Break up your single "credit card" expense account into a bunch of single, actual expenses. Like, whatever you used the card for, make expense categories for them. Electric bill? Pastor's travel?, etc. It will take a while, but basically, the credit card is just taking the place of the checking account, and the expenses should be itemized.

I am guessing that up until now, you simply make one entry to pay your credit card bill by CR checking and DB "credit card" expense - right?

Simple example: If you used the credit card for 3 items this year, $200 electric bill, $300 travel, $400 office supplies, then your "credit card" expense account should be $900.00. Let's say you haven't paid the last $400.00.



DB electric bill $200
DB travel $300
DB office supplies $400
CR new credit card liability $400 (the outstanding amount)
CR "credit card" expense $900
DB checking account, I guess? $500 Hey! You shouldn't have any outstanding balance if you have only been making this transaction when you actually pay your credit card bill. How is it that you have an outstanding balance??

You may have a totally new credit card bill that you haven't entered at all.

You can either pay the credit card and itemize it all in one step:
CR checking
DB all the various expense accounts

or you can do what we do:
CR checking
DB liability

CR liability
DB all the various expense accounts

The second group should be done as the expenses are built up, not when the bill arrives.

By the way, I think that you were referring to the beginning balance in the window of Maintain Chart of Accounts / Detail - where it shows the beginning balance, and other information. That is not where you assign the beginning balance. That just tells you what the beginning balance was on Jan 1. You can't change it there.

[Danna Hightower]

This credit card was opened a couple of years ago and was used when we had to move out of our building to fund our setup expenses. Since that time, we have changed Pastors. Starting this year, we closed the credit card and I was told not to itemize on this year, as we were only making payments to the balance. So I currently do not have expense accounts to charge.

I did not receive your reply in my email for some reason, so while I was waiting, I decided to try the following: ( I now see that I'm supposed to check a box to be notified! ) This is the first time that I have used this new format.

I debited Unrestricted Net Assets for the balance on the credit card back to January, and credited a line item that I set up for Long term liability/Credit Cards/Advanta. This appears to have worked correctly.
I am now planning on moving the balance from the credit card expense line item (which has been payments only) to the Long Term Liability for the credit card, to bring the balance to what is currently on the credit card.

Now my question is: I posted the entry to Unrestricted Net Assets as of June. I know this is going to look funny, that we did not have this outstanding from Jan - May, and now it's on June. Before I proceed any further, should I reverse this entry and repost it with a 1/1/09 posting date, for the month of June?

[JohnDMeyers]

Pam:

I think what you did will work - given that you don't need to itemize your expenses.

It is better to leave it in June. Without thinking too deeply, it seems that the old way you had it affected Unrestricted Net Assets through Income over Expenses for the first half of the year. To back up your adjustment entry would actually throw things out of whack until the current day.

Sounds like you're able to figure these things out pretty well!

[Danna Hightower]

Thank you for your help, John! I'm a little slow sometimes, but I try to figure it out!

[Danna Hightower]

It worked beautifully!