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BookBee
Level 1

How to record owners contributions with personal funds?

The owner used personal funds to purchase misc. items for the business BEFORE the business bank account was created. I entered these items as expenses using the payment account "Owner Expense Payable". The account type is "Credit Card". Detail is "Credit Card". Does this make sense for the accountants to know to deduct this from his Owners Drawings throughout the year or is this a nonsensical way of doing this? Wondering now about a different equity account - but you cannot use an equity account as a payment account in an expense sheet which is how I'd like these transactions to show. Any help is appreciated!!
3 Comments
LauraAB
QuickBooks Team

How to record owners contributions with personal funds?

Hello BookBee,

 

I know these kinds of transactions that can mix business and personal funds can be tricky, so it's great to see that you're looking to clarify how to work with them in QuickBooks Online. I can point you toward a resource that may help with sorting this out so that you can get back to the books.

 

First off, I'd like to note that I see you've commented previously in the US QuickBooks Community. Where we are right now is the Canada QuickBooks Community, so if you're looking for help with the US product, I recommend popping back over to the US side to make sure you get the right steps for your QuickBooks. There are some differences between the products, so it's best to make sure you're working with the correct team.

 

If you are working with the Canadian version of QuickBooks Online, I have the following article to share with you: Pay for business expenses with personal funds. I know there may be certain ways that owner's funds have to be considered, but I still recommend taking a look at this article to see if what's described would be useful for your needs.

 

Other bookkeeping and accountant users may still comment on this thread with their recommendations, so keep an eye out for that as well! It may also be worth checking in with any colleagues you have to see if they've worked with QuickBooks Online and this sort of transaction in the past.

 

I hope this has been helpful! Have a great day. :)

Rochelley
Level 8

How to record owners contributions with personal funds?

Hello @BookBee ,

 

This would be handled differently depending on whether the owner owns a sole proprietorship company or an incorporated company.  If the owner is a sole proprietor, set up three Equity Accounts.

1.  Top level account called Owner's Equity.

2.  Sub account under Owner's Equity called Owner's Capital.

3.  Sub account under Owner's Equity called Owner's Draws.

 

Owner's Equity Accounts QBO.PNG

Do not ever post to the top-level account.  Post everything in Owner's Capital or Owner's Draws accounts and the total of the two will roll-up to the top-level account.

To enter company expenses paid for by owner with personal funds:

 

1.  Open Expense Transactions and create a new transaction.

2.  Select vendor.

3.  Enter as many lines as necessary with appropriate expense categories and tax codes.

4.  In the last line, enter the Owner's Capital in category, in Description you might note something like "Expense paid personally by owner", then enter a negative number for the entire total of the bill, including taxes.

5.  Net effect is that you have an expense that is recorded properly, ITC for the GST or HST is recorded on the purchase and becomes part of your tax reports, the Owner's Capital account is recorded correctly, and you have a $0.00 Bill, meaning the company has no liability to this vendor.

 

Personally paid company expense.PNG

 

 

If this company is incorporated:

Follow the same steps as above except you would call your Equity accounts by the name Shareholder Loan instead of Owner's Capital.  You could set up as follows:

1.  Top level account, Shareholder Loan

2.  Sub-account Shareholder Contributions

3.  Sub-account Shareholder Withdrawals

Again, you do not post anything directly to the top-level account, but only to the sub-accounts.  The amount owing to the Shareholder or owing to the company will be evident by the rolled-up total in Shareholder Loan.

 

Enter the expenses the same way as above, substituting the Shareholder Contributions account instead of the Owner's Equity account.

 

If you receive a bill from a vendor that the company is going to pay but the expenses are personal in nature:

 

1.  Open Expense Transactions and create a new transaction.

2.  Select vendor.

3.  Enter Owner's Draws in category and no tax code.

4.  Save and Close.

5.  Net effect is that you have a liablity to that vendor which is recorded properly, no tax implications because this is a personal expense, the Owner's Capital account is recorded correctly as a Draw.

 

Personal expense pd by company.PNG

 

If any of these transactions are paid by company credit card, they can also be entered the same way.

 

You can also use JE's to record these transactions, as long as you are comfortable putting everything on the correct side of the accounts re: DR's & CR's.  Also, if using a JE and there is a tax implication because it is a company expense that has been paid personally, then you have to enter the tax line separately, posting directly to the tax account (GST/HST), and then tabbing over and putting in the appropriate tax code.

 

Hope that helps.  Let me know if you need any other assistance.

 

 

 

BookBee
Level 1

How to record owners contributions with personal funds?

Wow. Thank you so much for such a detailed response. You totally saved my day!! Appreciate it so much! Exactly what I was looking for. 

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