Tax Accounting for Credit Card Expenses

Summary

Simple Solution to tax accounting anomalies for credit card expenses

Content

Recently we encountered an issue around credit card expense reports where employer pay option is being used. System was generating below accounting entries:

Accounting for CC Issuer invoice(to make this example more simpler and understandable, let's assume that Credit card statement had only one entry for an employee):

Dr - Credit Card Clearing account - $ 10

        Cr - Liability account (Card issuer)- $10

Accounting for Expense Report submitted by employee for his credit card expense line. Assuming 10% of inclusive tax applicable on expenses.

Dr - Meals Expense - $9.09