# Managing Credit Cards

This chapter will explain how to manage your credit cards using GnuCash. Since you probably write a check to the credit card company each month, you may think of your credit card bill as an expense - but it really is not an expense. Why? A credit card account is a short-term loan - you buy things on that loan account, and then you eventually have to pay back the money, often with interest (your finance charge). The purchases you make with that credit card are your expenses.

You have a couple of options when entering credit card transactions, so choose the one that fits your desired level of detail. The basic level of detail is to simply track monthly payments to the credit card company. From your checking account, you can enter a transfer of money each month to the credit card account. This will show you the amount of money you are paying each month to the credit card company, but it won't show you any information about your credit card balance or credit card purchases.

The other level of detail allows you to track your balance and purchases, but it requires more entry. Using the credit card account register, you enter your receipts throughout the month. When your credit card statement arrives, you reconcile the credit card account to the statement, and you enter your payment as a transfer of money from your checking account to your credit card account. This method, in addition to giving you more information about your balance during the month, also points out any discrepancies quickly during reconciliation.

## Setting Up Accounts

To begin managing your credit cards in GnuCash, you should set up a credit card type account for each credit card you use. If you are tracking only the payments you make to the credit card company, then all you need is a bank account and a credit card account to enter your transactions.

If you decide to enter more detailed records of your purchases, you will also need to create expense accounts for those purchases. Since you will also be reconciling the balance to your credit card statements, you should also enter an opening balance in each credit card account. The easiest way to do this is to use your last statement balance as the opening balance.

## Entering Charges

Entering your charges provides you with a more complete picture of your spending habits. Charges on a credit card are tracked as a transfer from the credit card account to an expense account.

When you swipe that credit card through the machine at a store, you are transferring money from your credit card company to that merchant. This transaction increases the amount of money you owe the credit card company. If you keep track of these types of transactions, you can reconcile your credit card account with your monthly statement, and you should quickly spot any transactions that look suspicious. So how should you account for charges to your credit card?

One way is to manually enter all your receipts, either throughout the month or all at once. This can be time-consuming, but it is probably the best way to make sure that all of your charges are authorized. If you consistently enter all your receipts, you can quickly catch any errors or unauthorized transactions during your monthly reconciliation.

Another way is to import a credit card statement directly into your account. If your credit card company supports a QIF file format for its statements, you have the option of directly importing the statement. This type of import is covered in Chapter 11, and it is a convenient way to track your purchases without having to manually enter all your receipts.

## Entering Payments

Most payments to your credit card bill are entered as transfers from a bank account to the credit card account. When you pay the monthly bill, you are withdrawing money from a bank account to pay down the credit card balance. This transaction decreases both your bank account balance and the amount of credit card debt you owe.

When you return a purchase, you receive a refund on your credit card. This is another type of payment in that it decreases the amount of credit card debt you owe. If you recorded the original purchase transaction as a transfer from the credit card account to the expense, you now simply reverse that transaction: transfer the money back from the expense to the credit card account. This transaction decreases both the expense account balance and the credit card account balance. For example, if you originally recorded a credit card purchase of clothing, the transaction is a transfer from the credit card account to the clothing expense account. If you then return that clothing for a refund, you simply transfer the money back from the clothing expense account to the credit card account.

If you did not record the original purchase because you are not tracking credit card purchases, then you do not need to record the refund.

## Putting It All Together

Chapter 5 looked at bank and cash account transactions. In this section, we will add some credit card transactions and reconcile the credit card account. Go ahead and open your gcashdata file saved in the last chapter. As a review, your chart of accounts should now look like this:

FIXME:insert chartaccts3.png Entering Net Pay

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1. Open the Credit Card account register. To start tracking your credit card account, you first need an opening balance. For this example, assume your ending balance from your last Credit Card statement was $1000. Enter an Opening Balance transaction with Transfer account of Opening Balances and Charge amount of $1000. The transaction should look like this:

   FIXME:insert openbal.png Entering Net Pay

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2. Now suppose you have several receipts to enter in your account. Enter the following receipts into the register. Some of the suggested transfer accounts may need to be created, and GnuCash will prompt you through the setup dialog when you try to enter these.

   ### Credit Card Example

   2/1/01 | Greasy Spoon Cafe | $25 | (transfer account should be Dining, type expense)
   2/3/01 | Faux Pas Fashions | $100 | (transfer account Clothes, type expense)
   2/15/01 | Premium Gasoline | $25 | (transfer account Fuel, type expense)
   2/20/01 | Groceries R Us | $125 | (split between accounts Groceries ($85) and Household ($40))
   2/25/01 | CheapMart | $60 | (transfer account Household)

   Your register should now look like this:

   FIXME:insert ex_purch.png Entering Net Pay

   This image shows Entering Net Pay.

3. Now suppose you return the clothes you bought on 2/3 from Faux Pas Fashions. Enter a transaction for the credit card refund for the full $100 amount. Remember to use the same transfer account you used for the original purchase, and enter the amount under the Payment column. GnuCash will automatically complete the name and transfer account for you, but it will also automatically enter the $100 in the Charge column. You will need to reenter the amount in the Payment column. The transaction looks like this:

   FIXME:insert ex_refund.png Entering Net Pay

   This image shows Entering Net Pay.

4. When you receive the monthly statement, it shows a finance charge of $20. Enter that charge in the register, with a transfer account of Finance Charge (type expense). The transaction looks like this:

   FIXME:insert ex_fincharge.png Entering Net Pay

   This image shows Entering Net Pay.

5. Now reconcile the account to this statement:

   ### Statement Balance Example

   Previous Balance: | 1000
   +Purchases | 335
   - Payments | -300
   - Refunds | -100
   +Fin.Charge | 20
   New Balance | 955

   ### Statement Transactions Example

   Date | Ref. Number | Activity | Amount
   2/1/01 | xxx0012 | Greasy Spoon Cafe | 25
   2/3/01 | 4jg78sf1 | Faux Pas Fashions | 100
   2/5/01 | Payment received | -300
   2/15/01 | asdf4289 | Premium Gasoline | 25
   2/20/01 | jklt5748f | Groceries R Us | 125
   2/25/01 | 4578dkjg | CheapMart | 60
   2/25/01 | 2347891g | Faux Pas Fashions | -100
   2/28/01 | Finance Charge | 20

   Start the Reconcile dialog for this account. You will notice that the starting balance shows 0, not 1000. This is because the opening balance transaction has not yet been reconciled. GnuCash should show 1255 as the ending balance, but your statement shows 955. Enter 955 as the ending balance and click OK. You should now get a reconcile window that looks like this:

   Select each item in the reconcile window that matches an item on the sample statement. When you have finished checking off items, you should have a difference of -$300.

   Check over the sample statement to see which transaction is missing. You should find a payment for $300 that was not entered in the register - that is the difference amount. In the Reconcile window, click the New button on the tool bar. This brings you to the account register, where you can now enter a transaction for that $300 payment. Be sure to enter the correct date, and use Checking as the transfer account. The transaction should look like this:

   FIXME:insert ex_pmt.png Entering Net Pay

   This image shows Entering Net Pay.

   Record the transaction, then return to the Reconcile window. You should see the payment transaction listed in the Funds In panel. Select it to check it off. Now the difference should be 0, so click the Finish button to complete the reconcile process.

6. You should now see the Transfer dialog with an amount of $955, the ending balance. You decide to pay $300 again this month, so change the amount to $300. Enter a check number for the payment in the Num field, and enter a description. Your Transfer From account should be Checking, and your Transfer To account should be Credit Card. The Transfer dialog should look like this:

   FIXME:insert ex_transf.png Entering Net Pay

   This image shows Entering Net Pay.

   Click OK to accept the transfer. Your credit card account should now show the new transaction. All of the transactions you reconciled should now show up with y in the R column. The only unreconciled transaction should be the newest payment transaction.

If you haven't already done so, save your file. We will be using it again in the next chapter, which addresses investments. Your main window chart of accounts should now look like this:

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This image shows Entering Net Pay.