Many credit cards, such as Chase or Bank of America, set up credit card accounts in such a way that the company can have one corporate account (i.e., one combined billing) for all activity. While that’s all well and good, there is a challenge here that drives accountants insane. Cloud accounting systems will only pull in ONE bank feed per account. So if you have a corporate account with 15 subaccounts, how do you setup all the other subaccounts in Xero?
The initial impulse for accountants is to shake their fist at these annoying subaccounts, but credit card companies have the following good reasons to set things up this way:
- To help businesses track the activity for each user (so you know who was responsible for which charges); and
- To simplify payment for the company (one payment, so the company doesn’t have to manage 15 different credit card bills and write 15 different checks to their credit card company for all of their 15 sales representatives).
The challenge is to figure out how to set up the accounting properly so you can live harmoniously with this feature.
Here is the simplest, cleanest, and easiest way I’ve found to resolve this issue for accounts with few subaccounts and/or a low volume of activity.
1) Pay attention to how you use your cards.
In our firm, we’ve gone so far as to make sure that all of our auto-recurring charges are set up on one card and we try to keep the activity on the other card(s) to a minimum so that as much activity as possible flows through automatically.
Of course, this probably won’t help you with your clients’ activities, but it’s helped our own firm save time.
2) Set up the bank feed for the most active card on the account.
The advantage in doing this is that if you have one card that is extremely active but another card that is only used periodically, you’ll capture the bulk of the activity through the automatic bank feeds right off the bat.
3) Download and manually import the activity for the other card(s) into the same Xero credit card account.
At first, it may seem strange to be importing transactions into an account that is already receiving automatic bank feeds, but think about it—your goal is to get to the combined billing that the credit card company is doing.
This really only takes a couple minutes per subaccount, and in the end you’ll have one complete accounting for all activity on the account that is easy to reconcile, just like any other bank account or credit card that doesn’t have subaccounts.
Check out my last article, Fixing Monthly Statements, for tips on how to do this if you’re not yet familiar with importing credit card statements manually.
This is the fastest and easiest way I’ve found to handle most pesky multi-account credit cards, but if you have many subaccounts, a lot of activity, and/or if you rely on the accounting information to be automatically updated every single day, you may prefer to use Method #2.
This method requires a bit more advance setup, as well as some tweaking of the Xero reports, but it’s still a very effective way of managing credit cards with subaccounts in Xero, particularly accounts with a lot of activity.
The first thing to keep in mind is that Xero has a flat account structure. This means you don’t have “subaccounts” as you might find in QuickBooks Desktop or online. However, this doesn’t mean you can’t create your own version and modify reports to make the system bow to your bidding. Here’s how you can do that:
1) Set up each subaccount as its own account in the Chart of Accounts.
You might find it helpful to use the last four digits of each person’s card number as an addendum to the corporate card number.
Keep in mind that these accounts are treated as “bank” accounts in Xero, so don’t be thrown when they show up that way in the Chart of Accounts.
2) Set up a bank feed for each separate card.
Although Xero cannot attach multiple bank feeds to one account, you can certainly create multiple accounts and then attach one feed to each of those. By doing this, you can avoid having to manually import transactions as you would under Method #1.
You simply set up the bank feed in Xero and then select the appropriate card to match the account you are setting up.
Once all of the bank feeds are set up, the transactions for each card will pull “automagically” into Xero.
Once a feed has been assigned to an account, Xero will indicate that the bank account is “Already Connected” and gray it out so that you will not be able to assign that feed to another account without breaking the original feed.
3) Reconcile the credit card.
This is where a lot of people tend to trip themselves up. You have to keep in mind that the activity on the individual cards is being rolled up into the corporate card that is being used for billing purposes, so you’ll need to break down this process into one extra step before you can reconcile the account:
- Move the detail to the Corporate account.
In the following example, you’ll see how transactions for Roadrunner’s subaccount have been pulled in for the past three months. But nowhere in this list of transactions are there any payments that may have been made against the purchases. If left unattended, this balance will just continue to grow and grow forever.
You will need to transfer the balance from this card to the main corporate account at the end of each ending statement date.
- Repeat this process for every sub account.
- Reconcile the top-level corporate account as usual.