How Business Credit Cards, Loans, and Equipment Financing Affect Small Business Bookkeeping

Managing your small business finances involves more than just making sales and covering expenses, it requires smart choices about funding tools like business credit cards, loans, and equipment financing. While these financial options can boost cash flow and fuel growth, they also directly impact your bookkeeping and overall financial health.

Understanding how to properly record and manage these transactions ensures accurate books, easier tax preparation, and more informed financial decisions.

1. Business Credit Cards and Your Bookkeeping

What They Do: Business credit cards are ideal for covering routine expenses like office supplies, software subscriptions, and travel. They offer flexibility, cash-back, or reward points, but most small business owners don’t realize that every swipe of the credit card affects your books, not just every time you pay off the balance.

Bookkeeping Tips:

• Track Every Transaction: Categorize and record each purchase in your accounting software to maintain accurate expense records. Every time you swipe that card, the business owes the amount of that swipe to your credit card company, and every time you pay the card, you should be decreasing the credit card liability on your books, not recording an expense.

• Reconcile Monthly: Match your recorded expenses with your credit card statement to spot any errors or discrepancies. They should be treated and reconciled as you would a bank account.

• Record Interest & Fees: Log interest charges and late fees as business expenses to keep your financial reports accurate.

2. Business Loans: Tracking Borrowed Capital

What They Do: A business loan provides a lump sum you repay over time with interest. These are commonly used for expanding operations or increasing working capital.

Bookkeeping Tips:

• Log the Loan Properly: Record the incoming cash as an asset and the loan itself as a liability. Some time organizations end up recording the cash in as revenue. If you owe the money in the future, it’s not revenue!

• Separate Principal and Interest: Each repayment includes both. The principal reduces your liability, and interest is the deductible business expense. Some owners end up recording the entire payment as an expense, instead of paying down their loan balance and recording interest expense.

• Don’t Forget Origination Fees: Origination or service fees should be categorized as distinct expenses.

3. Equipment Financing: Recording Fixed Assets

What It Does: Financing allows you to acquire essential machinery or technology without the upfront cost, paying over time instead. Instead of recording an increase of cash as you would a business loan, you record the value of the piece of equipment which you are financing.

Bookkeeping Tips:

• Create a Fixed Asset Entry: Record the purchased equipment as an asset on your balance sheet.

• Track Depreciation: Depreciate the equipment over its useful life to reflect wear and value loss.

• Manage Liability: The amount financed should appear as a liability, with each payment reducing the balance and accounting for interest, as you would a business loan from above.

Best Bookkeeping Practices for Financed Transactions

• Use Accounting Software: Tools like QuickBooks, Xero, or Wave simplify expense tracking and reconciliation.

• Maintain Proper Records: Keep all contracts, receipts, and financing agreements organized and accessible.

• Consult a Small Business Accountant: A professional can ensure you’re following best practices and optimizing tax deductions. If you have an accountant or bookkeeper, ensure they are in the loop before you secure the financing or credit card to make sure systems are set up to properly record it.

Final Thoughts

Business financing, whether through credit cards, loans, or equipment leasing can be a game-changer for growth. But to reap the benefits, your bookkeeping must stay on point. By accurately tracking and categorizing these financial tools, you maintain a clear picture of your business’s financial health and make smarter decisions moving forward.

If you’re not confident on your bookkeeping for these financial instruments, or would like to offload bookkeeping entirely, us here at Pathfinder offer a free 30 minute consultation through this link!