Credit Charges

This Overheads code records the cost of credit charges incurred in running the business. As an expense account, it normally carries a debit balance: debit entries increase the balance (recording new costs) and credit entries decrease it (for example, correcting an error or a refund received).

Real-world examples

Business credit card

A business uses a company credit card for day-to-day supplier purchases and occasionally carries a balance past the interest-free period. The card provider's interest charge for the month — say £60 — is a debit of £60 to 7905 (Credit Charges) and a credit of £60 to the credit card liability account, with no VAT since it's a finance charge.

Extended supplier credit terms

A supplier grants extended payment terms — 90 days instead of the standard 30 — in exchange for a fee rather than interest as such. A one-off fee of £120 for arranging extended terms on a large order is a debit of £120 to 7905 and a credit of £120 to 2100 (Creditors Control Account).

Commonly confused with

Because code 7904 (H.P. Interest) sits right next to this one in Overheads, it's a common mis-posting target. Code 7905 is specifically for credit charges, while 7904 covers h.p. interest — similar in nature, but keeping them separate is what makes the overheads section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

An error posting to Credit Charges won't change total overhead spend, but it will distort the overheads breakdown that's usually reviewed line by line each month to spot cost creep.

Other codes in Overheads