credit card balance exceeds cash?

[tacks]

It's my understanding that credit card accounts are more or less cash on the balance sheet of the corp return.

What happens when credit card exceeds cash? Do you show a negative cash balance? Would that not be a big flag to the IRS?

(i've never encountered this before)

(by the way you guys have been helping me along left and right -- thanks much. I feel like i should buy beers for all of you.)

[Maribeth]

It's my understanding that credit card accounts are more or less cash on the balance sheet of the corp return.

What happens when credit card exceeds cash? Do you show a negative cash balance? Would that not be a big flag to the IRS?

(i've never encountered this before)

(by the way you guys have been helping me along left and right -- thanks much. I feel like i should buy beers for all of you.)

I would not report a credit card balance in the cash section on the balance sheet. I would and do report the credit card balance in the current liability section of the balance sheet.

I personally prefer a good dark microbrew, something with a lot of body & flavor to it.

Maribeth

[S T]

Agree

I, like, Maribeth, create an account/s under Credit Card Payables, which is a "liability" and is reflected on the Balance Sheet along with Accounts Payable.

Yuengling Black and Tan Beer is good. Didn't discover it until we moved to NC

Sandy

[Lion]

Yuengling

I like Yuengling anything.

[tacks]

The issue that i have here is a cash basis taxpayer showing an 'accounts payable' account. Would that not be a flag? Would it not appear as though the taxpayer were deducting expenses before paying for them?

But i guess that a cash basis taxpayer reporting a "Credit Card Payable" would be perfectly legitimate? right?

Could someone confirm, please? Forgive me but my head is still reeling a bit from tax season.

thanks

Now, back on the more important topic here.

I personally prefer a good dark microbrew, something with a lot of body & flavor to it.

In other words, you'd prefer a beer that's not waterdowned XXXX.

Yes, myself also.

Yuengling Black and Tan Beer is good. Didn't discover it until we moved to NC

I discovered it while in college and, at that time, couldn't get enough of it.

I like Yuengling anything.

Not trying to 'one up' you on this but let me say that if one of the beautiful young Yuengling daughters took you on a tour of the brewerey you would like Yuengling even more so.

Again, I'm not trying to 'one up' anyone here, discount someone else's opinion nor am i wanting to come off as a 'beer snob.' But after saying that and after having drank quite a few Guinness stouts on the Liffey I felt that another brewery in Pennsylvania, Philadelphia Brewing FKA Yards brewery, did a 'love stout' that was exceptional. I'm not merely saying that I "like it" I'm saying that it's absolutely brilliant.

[AJsTax]

you are correct

in that a cash basis taxpayer deducts expenses as of the day they are paid for with a credit card. They will carry a A/P to the credit card on the books much the same as a loan to buy equipment or supplies that is later paid for, but expensed as of the date purchased or put into service.

[CinSee]

We've always posted them as current note payable.

[Snaggletoof]

Balance Sheet

for C Corps, S Corps, Partnerships, etc. is supposed to match your books.

If the company is on the cash basis, and cash for tax purposes, the unpaid Credit Card account should not appear at all.

If the company is on the accrual basis, but cash for tax purposes, the unpaid Credit Card account should appear as a Liability, probably under "Accts Payable." The expenses related to the credit card balance should not be deducted, but appear as a reconciling item under M-1 beneath the Balance Sheet. Note that these same expenses will by design be paid in the next year, so the reversal of them will be necessary next year in order for the M-1 to reconcile.

[AJsTax]

Expenses paid for with a credit card are expensed when the item is paid for with the credit card, NOT when the credit card is paid. They are NOT a liablilty item at years end for a cash basis taxpayer. They are a current year expense.

[Snaggletooth]

Individual

AJ, I believe you are correct for an individual.

However, the assumption to an entity that something is paid means something has to come out of the cash account. To do otherwise throws a ledger out-of-balance. The charging of an expense means that some asset must be reduced (or some liability increased).

[Gretel]

Now, I get confused. Why would it be different for Corporations than for Individuals? Maybe this is a wake up call for me.

[Bees Knees]

Expenses paid for with a credit card are expensed when the item is paid for with the credit card, NOT when the credit card is paid. They are NOT a liablilty item at years end for a cash basis taxpayer. They are a current year expense.

They are deductible for a cash basis taxpayer when paid for with the credit card. That is why they ARE a liability item at years end for a cash basis taxpayer. Any deduction taken that is still a liability at the end of the year must be shown as a liability on the balance sheet, even if the taxpayer is a cash basis taxpayer. The employee's share of FICA is another example of a liability that must be reported as such on the balance sheet for a cash basis taxpayer.

Those who claim cash basis taxpayers should never show liabilities on the balance sheet are simply wrong. Cash basis does not mean zero liabilities.

[CinSee]

Credit cards are essential short term revolving debt, similar to an equity line. You can purchase something through loan proceeds, take the deduction and still have the debt.

[AJsTax]

They are deductible for a cash basis taxpayer when paid for with the credit card. That is why they ARE a liability item at years end for a cash basis taxpayer. Any deduction taken that is still a liability at the end of the year must be shown as a liability on the balance sheet, even if the taxpayer is a cash basis taxpayer. The employee's share of FICA is another example of a liability that must be reported as such on the balance sheet for a cash basis taxpayer.

Those who claim cash basis taxpayers should never show liabilities on the balance sheet are simply wrong. Cash basis does not mean zero liabilities.

now we are talking in circles and saying the same thing. The expnse items themsellves are not a liabilty at years end. The amount owed to the credit card company is a liabilty to the company (or individual) at the year end. Just because there is not a balance sheet on tax return does not mean he does not have one. The A/P to the credit card will show on the BS. This concept is true for all entities. Expense Items purchased with a credit card are considered to be same as purchased by cash on the date charged to the credit card and the amount owed to the credit card is a A/P or loan, if you will.

[taxxcpa]

Negative balance

Once I had a client whose "float" caused a negative cash balance. I listed it as a negative asset, but when I had a peer review, I had to change it to a liability. However, on the tax return, I always show negative cash balances as a negative asset. Credit card debt, however, should be shown as liabilities. For my own personal books, however, I record credit card debt as negative cash, then debit that account when I pay the card. I show it as cash since it warns me not to allow it to go past the due date which would cause me to pay interest.

Seeing a negative figure under 'cash' is more noticeable (to me) than showing it under liabilities. I would not do it that way for a client since it is not proper accounting.