Bank Reconciliation and credit cards

My credit card accounts are bank accounts that are underneath a Liability-category control account.

If I have a credit card with a 0 balance, and then I make a 500 charge to it, the balance sheet for that card shows 500 (+), not -500. This is correct, since it’s a liability account.

However, reconciliation doesn’t seem to know this: when I go to reconcile, I need to remember that reconciliation wants me to say the balance is -500. I think think this is wrong both from an objective standpoint (it’s a liability account, with a credit, and in a liability account credits increase the balance) and also wrong from a user interaction standpoint (in nearly every other situation, that credit balance appears to you as positive - it’s only in this ONE SITUATION that you have to remember to pretend it’s negative.)

I’m self-interested in this changing because I get this wrong literally every single time I go to reconcile my credit card. But I’m curious if anyone else disagrees strongly.

Yes, I disagree strongly for several reasons:

  • Liabilities are presented as positive numbers on the balance sheet only because that is a long-standing accounting convention that reduces clutter. All accountants understand that liabilities are of opposite sign to assets. The negative sign is omitted only because of the heading: Liabilities.
  • Any computerized accounting system needs to be based on a fundamental design question: will debits be positive or negative (the converse of that question being, will credits be negative or positive)? Either works, and there are systems written both ways. Manager is based on a decision that credits will be negative.
  • When you charge something to a credit card, you have generated a credit. So that is a negative number within Manager’s “cosmology.”
  • When reconciling a credit card account, you don’t have a positive balance like you do when reconciling a demand deposit account. A checking account is an asset; you have the money represented by its balance and can use it for various purposes. A credit card balance represents money you owe, and you cannot use it for other purposes. So it is only natural that the balance you are trying to reconcile should be a negative number.

I respect your POV, but it seems to me this doesn’t match with the reality of how numbers are actually entered by users in Manager. Credit card values are presented as positive in places other than the balance sheet.

In fact, when dealing with credit cards in Manager, a user almost never types or reads a negative number; if they make a payment, they go to the Payments tab, and type “500”, positive, to indicate that they’re paying 500 units of currency. So the reconciliation flow is already fighting against the muscle memory of the most common credit card activity, making a purchase. Likewise, when paying their credit card via an account transfer, they’ll only type a positive number, along with the from/to accounts. I do agree that the credit card account detail shows the balance as negative, and I don’t really have a problem with this continuing to be the case

I also respectfully disagree with your assertion that “when reconciling a credit card account, you don’t have a positive balance.” Every credit card statement I’ve seen represents the money borrowed as a positive balance. At least in the US (I’m willing to believe this is different elsewhere, in which case this becomes a thorny localization problem, I guess), your credit card statement - the very thing you’re reconciling against - will say your balance is “$500”, not “-$500”, when you owe them $500. I think it’s not a great user experience for the reconciliation process to be “Pick up the bill that lists the balance you’re reconciling against, read the ‘balance’ number, and remember to multiply by -1.”

If credit cards in Australia and New Zealand have reverse conventions and show a balance owed as negative, then I think serious consideration should be given to making this locale-dependent. Do they?

Yes, but that is the payment entry form. That payment generates to entries to the general ledger, one a debit, the other a credit—one positive, one negative. The positive one is the debit and goes to an expense account. The negative one is the credit and goes to a liability account. That’s fundamental, double-entry accounting. Nothing to do with muscle memory.

Good, because you’d be fighting over 500 years of accounting practice and history.

Indeed, because it is presented from the bank’s perspective. All accounting is from the perspective of the entity doing the accounting. The balance you owe is an asset to the bank, a debit on their books. It would show up in their accounts receivable.

You will not prevail on this, @peterb. And I am not presenting a personal opinion here. I am discussing basic principles of accounting.

You’re really overselling the argument, @Tut.

This has very little to do with the basic principles of accounting, as you know; this is simply a user interface decision, nothing more (as can be seen by the existence of many other accounting packages - including QuickBooks and Xero, two of the most popular cloud accounting solutions in the world! - which have the user enter a non-negative value when reconciling credit cards.)

Not really trying to “prevail” - this isn’t a fight, it’s a discussion, and i’m giving the feedback that the user interface flow for reconciling credit cards in Manger is confusing. Trust me, Luca Pacioli did not give any guidance on computer program UIs (and if he did, he would have been horrified at your description of credit as “negative,” since 15th century Italians still looked at negative numbers with suspicion and loathing.)

My experience is banks change the sign based in if they are offering a credit card or a debit card.

Managers sign convention aligns with the banks products if the user has a debit account with their bank.

So I suppose the question is should Manager have explicit support for external credit card accounts or just let Manager treat them all as debit cards and leave the user to do the sign flip based on the users good understanding of credits and debits. :slight_smile:

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Actually thinking about it some more, I suppose what is being suggested is

  • Check box in Bank account used if external account is a credit not debit account.

  • Functions in an analogous fashion to the “Expenses” check box for profit an loss accounts ie change the displayed sign and label the bank account as a Credit account when drilling down into that account.

I don’t enter credit cards however it could be consistent with Managers interface elsewhere and others may well appreciate it.

More and more more and more options to add to the complexity of the program.

In seven years I’ve been reading the forum, no one else has ever complained about this. If my research is correct, exactly one person has had a question and understood completely when told to enter the credit card balance as a negative number.

This is unnecessary. A credit card charge creates a liability. A debit card expenditure is exactly like a direct payment from the bank account — no liability is involved. There is a reason there is a Guide on how to set up a credit card but no Guide on how to set up a debit card. Debit cards don’t need to be set up.

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I agree that more UI is unnecessary - I just think the convention is reversed in Manager from how it’s done everywhere else I’ve seen.

I just spot-checked the QuickBooks Online UI, as well as Sage, and charges on credit cards in both of those are entered as positive amounts in the reconciliation UI also. Can someone who uses Xero tell us what convention they use?

Needless to say, just because other tools do something a certain way does not mean that Manager has to do it that way too. But I think it is good data as to the likely expectations of many users.