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How to categorize credit card payments in QuickBooks

Crop unrecognizable woman taking credit card out of wallet

Whether you’re paying vendors or receiving customer payments, a constant flow of credit card transactions is unavoidable. What’s worse is keeping up with these payments on a daily basis.

The good news is that QuickBooks Online comes with a credit categorization feature. This tool:

  • Organizes credit card transactions.
  • Speeds up processing.
  • Enhances financial reporting. 

So, how do you navigate it? 

Keep reading to learn how to categorize credit card payments in QuickBooks, including some common errors and best practices.

Steps to categorizing credit card payments in QuickBooks Online

Here’s how to categorize credit card payments in QuickBooks Online: 

  1. Log into QuickBooks. 
  2. Select “Banking” from the left menu. 
  3. Find and select your credit card account. 
  4. In the “Review” tab, choose the transaction to categorize. 
  5. Fill in details like your vendor or consumer name, the expense category, and add custom labels if needed. 
  6. Choose a category from the drop-down menu, enter the amount, and complete the fields. 
  7. Click “Add” to let QuickBooks categorize your credit card payments. 

These steps improve efficiency by outlining how to process credit card payments in QuickBooks Online the fastest way.

Different ways to categorize credit card payment in QuickBooks

Understanding how to categorize credit card payments in QuickBooks also means learning about its different categorization options.

Categorize individual credit card transactions

When it comes to receiving payments via credit card, PayPal, or other methods, categorizing individual transactions is the norm. To achieve this, just follow the usual steps outlining how to categorize credit card payments in QuickBooks Online.

As you continue using QuickBooks, it learns to recognize and suggest categories for familiar credit card transactions. You can always adjust these if needed. 

Also, keep an eye out for “Match” instead of “Add” on certain transactions. This feature helps avoid duplicates for: 

  • Pre-existing bills.
  • Invoice payments.
  • Bank deposits. 

All you need to do is verify that the balance matches, then click “Match.”

Learning how to categorize credit card payments in QuickBooks boosts your efficiency and makes learning how to process credit card payments in QuickBooks Online easier.

Split transactions among categories

Sometimes, you may need to divide a credit card transaction across categories. 

Imagine you’ve got a receipt for $200, which includes $120 for office supplies and $80 for travel expenses. You can easily split this in QuickBooks Online. Simply allocate $120 to the “Office Supplies” category and $80 to “Travel Expenses.” This way, your financial reports are as accurate as possible to reflect each type of expense. 

Here’s how to split transactions among categories: 

  1. Log into QuickBooks Online. 
  2. Navigate to “Banking” in the left sidebar. 
  3. Select the transaction you want to split. 
  4. Click “Edit” or the pencil icon. 
  5. Choose “Split” in the transaction details. 
  6. Assign amounts to each category in the split. 
  7. Save the transaction. 

By mastering how to categorize credit card payments in QuickBooks, you’ll improve your: 

  • Business efficiency.
  • Financial accuracy.
  • Operational organization.

Common errors when categorizing payments into QuickBooks

Now that you know how to categorize credit card payments in QuickBooks, let’s identify some common errors and how to avoid them. 

Not using the “Split” feature

Failing to use the “Split” feature on credit card statements can result in inaccurate tracking when a transaction spans multiple respective categories.

To fix this, get comfortable with the “Split” function and use it for multi-category transactions. Also, make sure you’ve assigned each transaction to the correct credit card account. 

Incorrect account selection

When categorizing credit card payments, selecting the wrong account leads to issues. 

For example, choosing an expense account instead of a credit card liability account results in incorrect transactions and financial statements.

To avoid this, always double-check your account selections to make sure they match the transaction and credit card type, like payment vs. direct expense. Also, ensure that your bank and credit card details are correct to prevent inaccuracies. 

Failing to update categories

Failing to regularly review and update your expense categories results in misclassifications.

To ensure accuracy when recording payments, schedule routine checks of your expense categories. This lets you make necessary adjustments as your business shifts over time. 

Understanding these common errors is crucial in learning how to process a credit card payment in QuickBooks Online.

Best practices when categorizing credit card payments

As you learn how to categorize credit card payments in QuickBooks, adopting best practices eases your bookkeeping burdens.

Here are some best practices to keep in mind: 

  • Regularly reconcile: Regularly match your credit card transactions with bank statements for financial accuracy. 
  • Set up banking rules: Use QuickBooks’ banking rules to automatically categorize bank transactions. This saves you time and reduces manual errors. 
  • Separate personal and business expenses: Carefully categorize transactions, especially if the same credit card is used for personal and business expenses. This maintains clear and accurate records.   
  • Train your team: Equip your team with the skills to handle transaction details in QuickBooks efficiently.  
  • Review reports regularly: Use QuickBooks reports to check for any categorization errors. 

These best practices are also useful when learning how to process a credit card payment in QuickBooks Online. 

Shorten your lead-to-cash cycle with Method

Method is the #1 lead-to-cash automation tool for QuickBooks and Xero users. It makes credit card payments in QuickBooks even easier, along with offering several additional benefits. 

Method’s two-way, real-time sync with QuickBooks reduces manual data entry and keeps your business finances current and up to date. This leads to fewer errors, freeing up more time for activities that add value to your business.

What’s more is that Method’s automation capabilities speed up and simplify your payment process for a better bottom line. 

QuickBooks credit card payments categorization FAQs

What constitutes a valid credit card expense?

A valid credit card expense is one that’s necessary for your business and fits your company’s spending rules. It should be solely for business-related expenses, and you need to back it up with receipts and follow tax guidelines.

What kind of expenditure is credit card payment?

A credit card payment is treated as a liability payment in QuickBooks, as it reduces your credit card balance. 

Note that QuickBooks doesn’t count it as a direct business expense, but rather as the repayment of borrowed funds.

Is it ok to exclude credit card payments in QuickBooks?

No, excluding payments to credit cards, including partial payments, is not recommended in QuickBooks. Doing so leads to inaccuracies in your financial records and reports. 

Recording all transactions, including credit card statements, ensures a complete and accurate financial overview.

Simplify your credit card payments with Method. Start your free trial today. 

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