Suppliers and credit card payments in small business accounting

freeflyer

Hi all, 

Forgive my ignorance on such matters, I should point out my knowledge on accounting is near zero.
I've been part of a partnership in a small family business for many years, but are taking over more day to day running of things and accounts as my parents are retiring and having little or no involvement. Previously, i have had no involvement in the accounts side of things, and just did the work.

We've just switched to sage cloud so i can understand things more and have more records of things. Previously, all accounts were done locally on sage 50. 

Can i ask the following for clarification:

I purchase something from a supplier, I use credit card as a method of payment on that day: In the purchase invoice that i create on the accounting package should this be set as 'unpaid' or 'Paid' . My line of thinking is 'Paid' as my debt to the supplier has been cleared (albeit indirectly from the credit card company), and that he transaction and debt to the supplier has ended. My debt from that point onwards is actually with the credit car company, and not the supplier.. is that correct? Therefore I mark the original invoice from the supplier as paid?

The person that was doing the accounts previously seems to think this should be marked as 'unpaid' until such time as the credit card payment for it has been cleared.

Which is correct?

Savvy_Sue

I am almost as ignorant as you, but ... 

who pays the credit card bill? At least I think that's a relevant question. 

Because while your debt to the supplier is cleared, the partnership still owes money ... to the credit card company? to an individual? 

Can you ask the previous accounts person for their reasoning? I think I agree with them ... 

My reasoning: you have to think about what you want to find out from the accounts. One always relevant question is "how much money have we got?" If you buy a shedload of widgets for £100 from WidgetsRUs, then you have a shedload of widgets but the company has £100 less in actual cash - for now, let's say you paid for your widgets in cash, so it's obvious you are £100 down. 

So if you paid £100 on plastic, the company still owes £100 somewhere, it's still got £100 less than before you bought the widgets. But if you say it's paid immediately, then that's not reflected in the accounts. 

Now, the alternative is to itemise your card purchases and treat the credit card (if it's a company card) like a bank account, and there's nothing wrong with that. But somewhere, your debt of £100 has to be shown, until it is paid. 

Sandtree

Nothing close to an accountant either and it could be somewhat dependent on your software solution.

I personally would mark the invoice as paid as soon as its paid no matter if its paid with cash or credit... if it were a larger organisation you wouldnt want it showing as unpaid in case a late received chaser came in and someone else then paid it a second time.

What you do need to ensure however is that the debt to the credit card company is promptly recognised in the accounts else the balance sheet will be artificially inflated.