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We see lots of questions on QBCommunity about how to handle scenarios where the owner either puts money towards their business out of personal funds or uses business funds to pay for personal expenses.

 

These are both common scenarios and for more than financial reasons, it’s imperative to account for these types of transactions properly.

 

This will reapply some of the techniques we learned from the “Creating and Managing Accounts” tutorials as you may need to create some new accounts. For the workflows below, it’s very important to follow them in order and exactly as directed so your accounts remain accurate.

 


 

How to Record Business Expenses: Paying with Owner Funds | QuickBooks Online Tutorial 2018

 

Let’s start with a scenario where you, as the owner, paid for an expense for the business out of your own pocket. Create an “Owner’s Contributionsequity account (Accounting > Chart of Accounts > New Account) that you will use going forward.

Setting up for success - Owner 1.PNG

 

 

Now, enter the Expense the same way you'd record a typical expense transaction, entering the date of the purchase and the payment method. In the line item section, enter the expense and then add an additional line item posted to your new Owners Contribution account for the same amount as a negative value. This effectively “zeros-out” the expense. By doing this, your checking account (or whatever account you are paying from) records remain accurate - - you can track what you as the owner have contributed without impacting those numbers.

 

Setting up for success - Owner 4.PNG

 

It’s also wise to utilize the memo section if you want to add an explanation for why personal funds were used – the more documentation you have, the easier tax season will be. You can even create sub-accounts of Owner’s Equity if you want to separate one-off payments from other types of purchases, like assets.

 

We recommend checking your Owner’s Equity Account in the CoA (click “view register” for more details) and your Profit and Loss Statement after entering an Owner’s Contribution. A quick review shouldn’t take more than a few seconds.

Setting up for success - Owner 5.PNG

 

Give it a try - simulate a few of your recent purchases as if you, as the owner, had paid for business expenses out of your own pocket in Quick Books Online Test Drive.

 

FTU Test Drive

 

 


How to Enter Personal Expenses: Paying with Company Funds | QuickBooks Online Tutorial 2018

 

 

 

Now, let’s look at the opposite scenario when business funds are used to pay for an owner's personal expenses. Create an “Owner’s Personal Purchases/Owner's Drawequity account (Accounting > Chart of Accounts > New Account) that you will use going forward.

Setting up for success - Owner 2.PNG

 

The detail type can also be “Personal Expenses” if you want to further differentiate this account from the Owner’s Contribution account you just created (note that the Category and Detail Type can be exactly the same, but the name distinguishes the two).

Setting up for success - Owner 3.png

 

Enter the expense (in the case of the tutorial, a meal) and use your new Owner’s Draw account. When you go into your Balance Sheet or CoA, you will see the company payment method you used when you entered the expense has been reduced and your Owner’s Draw Account now has a negative balance.


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Revision #:
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Last update:
‎09-28-2018 11:04 AM
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