What it means
Visa runs the network, but your bank issues the card. There's no Visa account in your books. There's a card liability named after the issuer, and the charges come through the issuer's feed. Most of them are plain expenses on the charge date.
Annual plans are the exception that matters. A $12,000 subscription charged on day one of a 12-month term goes to prepaid expenses, an asset, with the card liability rising by $12,000. Each month after that, $1,000 moves from prepaid to software expense. After three months the prepaid holds $9,000. After twelve it's zero, right as the renewal comes up.
Paying the card later debits the card liability and credits cash, the same as any card. The expense side follows the prepaid schedule, so the payment date has no effect on it.
Two tie-outs. The card liability should equal the statement balance, plus charges and minus payments and credits posted after the statement closed. The prepaid balance should equal the months left on each plan times its monthly amount. If a plan was cancelled or renewed early, the schedule needs to change with it.
Prepaid expenses covers the schedule, and the prepaid threshold in your written policy decides which charges need one. Mastercard and Discover cards book the same way.
Why it matters. Card spend is easy to code one charge at a time and easy to get wrong in bulk. An annual software plan on a card is a prepaid, not one month's expense.
Visa isn't a ledger, and we don't connect to it. We work only in QuickBooks Online and Xero. This page covers how Visa shows up in the books kept there.
The entry, worked
A $12,000 annual software subscription is charged to a Visa card on the first day of a 12-month term.
| Account | Debit | Credit |
|---|---|---|
| Prepaid expenses | $12,000.00 | |
| Credit card payable | $12,000.00 | |
| Total | $12,000.00 | $12,000.00 |
The cost sits as a prepaid asset, and $1,000 moves to software expense in each month of the term.
Common questions
How do I record an annual subscription paid by card?
Debit prepaid expenses and credit the card payable when it's charged. Then expense one-twelfth in each month of the term.
Does every annual charge need to be a prepaid?
Not if it's small. Most companies set a threshold in their written policy and expense anything below it right away.
What happens to the prepaid if I cancel an annual plan early?
If the vendor refunds part of it, the refund reduces the prepaid balance. If nothing comes back and you no longer use the service, expense whatever is left in prepaid that month, because an asset you can't use isn't an asset.
Read further
- Bank reconciliation step by stepFounder guide · 6 min
- Company cards and receipts: coding, matching, reconcilingFounder guide · 6 min
- How to pay vendors: ACH vs wire vs check vs cardFounder guide · 6 min
- Prepaid expensesRelated · US GAAP · ASC 340-10
- MasterCardRelated · Card network
- ReconciliationRelated · Control
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.