One common issue that business owners may run into is that, even though they have paid off their credit card balances and recorded the payment within their QBO, it still shows that any subaccounts attached to the credit card account will still have a balance rather than zeroing itself out. This tends to cause some confusion as to how it occurs and how to resolve the issue. So in this article, we will discuss something called the "Credit Card Roll-Up".
To explain in better detail, we first need to understand how the circumstance occurs.
Generally, Quickbooks will import transactions and balances through the bank feeds and automatically show the status of both the remote account and the books within the software. This makes it incredibly easy to keep track of the balances, and if you have a business credit card account with multiple cards linked to it, you can monitor each card as well. All you have to do is set those credit cards for your employees up as subaccounts, the collective balance shows up within the parent account of the control card.
However, when it comes time to pay off those balances you might notice that the payment will affect the parent account but not the subaccounts. As a result, the balances within the subaccounts will continuously grow until there's a noticeable difference between what should be there and what truly is. That's because any changes to the parent account will not affect the subaccounts, which means that if you want things perfectly balanced (as all things should be) you will need to shift those balances manually.
That is where the "Credit Card Roll-Up" comes into play.
Using Adjusting Journal Entries, the bookkeeper can roll the balance of all subaccounts into the parent account in order to zero out subaccounts. This works because the parent account only has a balance due to the subaccounts, so you're not erasing them so much as placing them into the point where they all converge with the control card. You're just putting them all into the account that is affected by the payment made to the credit card vendor since Quickbooks does not automatically handle the issue.
As an example, let us assume my business has a business credit card and two employee credit cards for their expenses.
2300: BoA CC - Main
2301: BoA CC - Employee 1
2302: BoA CC - Employee 2
At the end of the month, Employee 1 has accrued $420.15 in expenses while Employee 2 has accrued $182.99 in expenses. Because these are subaccounts, the parent account (Main) will show a total of $603.14.
Assuming I have set the credit card to pay the statement balance at the beginning of the month, a payment of $603.14 will come from the Checking account and zero out the Main account.
Feb 1st: 2300: BoA CC-Main $603.14
Checking Acct $603.14
However, as the subaccount has not been zeroed out, they will still have their pre-existing balance and that will accumulate the longer time goes on unless you roll it up with a journal entry set the day before the payment. So I create a journal entry with the following:
Jan 31st: 2301: BoA CC - Employee 1 $420.15
2302: BoA CC - Employee 2 $182.99
2300: BoA CC-Main $603.14
As you can see, the debits to the subaccounts for their balance will zero them out and move them to the Main account. And that will be zeroed out by the payment. That cleans up the books and makes things much smoother while maintaining complete transparency.
We will cover more bookkeeping information as the year continues, so feel free to subscribe and keep up to date. And don’t be afraid to Contact Us if you want our assistance in doing your bookkeeping. After all, we exist to help keep your books in the black.
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