Accounting Question: My boss and his credit card usage.?

Question

Accounting Question: My boss and his credit card usage.?

Answer 1

he is going to have major problems with the IRS if he ever gets audited -



only thing I can think of is to charge everything to one company when you pay the bill and then do inter-company entries (with accounts payable and receivable balances that will never get paid off) to transfer the expenses to expenses to where they belong



you will have to set up "Due to/from Accts for the other two companies



A - pays the bill - A acctg books will have a Due FROM acct for Company B and C when you transfer costs that are for those companies - debit due from, credit expense



Company B and C will each have a due TO acct for company A - credit due to acct, debit expense



I hate intercompany entries, but I deal with them all time at my company - owned by a Fortune 500 company with lots of subsidiaries of which we are one



for the personal expenses, they would have to be charged to draw against equity

Answer 2

There is a word for this kind of issue - Commingling of Funds.



This is a violation of Federal Law.



Explain to him that he could be due for fines and penalties if he insists on continuing this behavior.

Show him the law.



If he is smart, he will quickly agree and change his behavior.

Answer 3

This is a very common situation for accountants with clients who own multiple enterprises. By some other answers, it's obvious one point should be clarified: although this is can be a huge bookkeeping headache; if he is the principal owner of all the businesses then this is in not a criminal activity if he has directed you to keep track. The is also true for personal expenses if he has directed you to record them as personal and not business.



Ideally, you will keep separate Quickbooks companies for each legal entity. This means the credit card activity for different companies is funneled through Balance Sheet Intercompany accounts. When the X company's credit card account is charged with an expense for Y company, it is coded to an Asset account "Interco-Due from Y". Correspondingly, in Quickbooks Y company, an entry is posted to the liability account "Interco-Due To X" and expensed accordingly. Personal expenses are treated as Owner Withdrawals from X Company.



Periodically (monthly is advised), a check is cut from Y Company to settle the Intercompany account.



The Intercompany accounts can also be settled by offsetting Owner Equity transactions but this method is not something I would advise as it easily confuses and clouds direct owner distributions.



Keeping all three companies' books in a single Quickbooks company would allow you to use Classes and so distribute the credit card activity that way. However, this is not advisable because of the difficulty in properly tracking and accounting for each companies' Balance Sheet accounts - particularly Owner's Equity. Not impossible, but requiring significant thoroughness and clarity of entries.



You should advise your boss that using a single credit card for all companies compounds your time entering credit card activity by a factor of 4 (duplicating each interco transaction x 2 companies) in addition you now have 4 additional accounts to reconcile each month. If you calculate your time spent and your wage/salary and give him the dollar amount the single card method costs him, he may relent and apply for 2 more cards.



If the companies have separate checking accounts, almost all major banks now offer free check card service. This would be a simple and quick way to get the transactions entered...especially if you use Online Banking!



Good luck!



Karl Sexton

Accounting On-Call™ Tampa

Accounting | Quickbooks | Tax | Bookkeeping

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