How To Record A Line Of Credit In Accounting

In general, line of credit accounting is performed the same way as reconciling a bank account or a credit card. All receipts associated with the account are listed, along with any other costs associated with the account, and any payments that have been made against the account are figured in. With a line of credit, there may be several credit cards attached to the account, and each one needs to be monitored carefully.

What is a Line of Credit?

To understand line of credit accounting, it helps to understand what a line of credit is, and how it works. The application for a line of credit is nearly identical to a loan application, with the difference that the line of credit may be drawn from over time, or not at all, as needed. Many companies use a line of credit to handle routine expenses, such as payroll or office lease. This helps the company by having the apparent funds available, even while waiting for company deposits to be posted on the account. Another advantage of a line of credit is that, unlike a loan, it has no defined period of payback, and may have varying balances just like you would have with a credit card.

Tracking Credit Account Numbers

In credit expense accounting, keep track of the number of people who can make use of the account. In many cases, multiple cards are issued, which makes individual accounting as simple as keeping track of a series of card numbers, each one assigned to a particular service or employee. Another example would be a line of credit with a particular company, where any of your employees could pick up supplies, and a single monthly statements is issued for all purchases.

Incorrect Entries

Beware of credit line charges that you don't have a record for. Not all companies that are willing to extend a line of credit are as trustworthy as you might think, and mistakes can and do happen. The purpose of accounting is to reconcile outgoing debts with incoming funds and balance the two, hopefully with a positive bottom line, but it requires vigilance when listing the details of a line of credit.

Credit Accounting

If necessary, keep accounting credit memos, and then track the results. When paying on a line of credit, remember that your effective cash flow is increased when the balance is low, so business budgeting should make maintaining a line of credit a first priority. If the process seems to be overwhelming, look into professional credit crisis accounting. This will help your company get on a stable financial track, and sort out the tangle of your bookkeeping process.

Credit Lines are Important

For any business, having one or more lines of credit can be crucial to surviving in today's business world. Even if having them seems to be more accounting headache than you want to deal with, the advantages of having them far outweigh the inconvenience of accounting.  Even if you never use it at all, keeping one in good standing creates a more stable business foundation.

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