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hillderr_qns
Level 1

Record expenses from multiple sources before LLC formation

Me and a buddy of mine were excited to Start a business so before we formed an LLC or opened the business bank account, we made a bunch of purchases (equipment, software, legalzoom) in preparation for the start of the business. These purchases were from multiple income sources but all cards (i.e my debit/credit and his credit/debit cards).

For tax purposes/ book keeping would this be a correct way to record them(might not use the right qbo terminology but bear with me):

1. Create partner's equity (both him and me)

2. Debit that equity into a bank account (a generic bank account with a name like "Owner bank account" as a catch all for the multiple income sources we had before business bank account)

3. Record the expenses against "Owner's Bank account".

4. After all expenses are accounted for transfer remaining funds to actual linked business bank account.

 

This is what actually happened.

Is this a legit way to do it if you don't want to put the personal credit/debit cards on the books or if it is really tedious matching the various cards? And of course if there was ever an audit, there are pdf invoices of all the equipment we bought with all the card info available. Is this legit?

Solved
Best answer January 26, 2021

Best Answers
ReyJohn_D
Moderator

Record expenses from multiple sources before LLC formation

You're almost there, @hillderr_qns.

 

I've got some ideas on how to record business expenses you've paid using your own money. 

 

First, you'll need to create an expense account to track these expenses. Before you proceed, I'd suggest consulting your accountant for the best advice. If you don't have one, we can help you look for an expert through our Find-an-Accountant tool.

 

Please follow along below to get this done right away:

 

  1. Go to the Accounting menu, and then choose Chart of Accounts.
  2. Click the New button.
  3. Select the right expense Account and Detail types from the drop-down. If you aren't sure, you can also seek help from your accountant.
  4. Enter the purchase name like "Equipment purchases" in the Name field, etc.
  5. Click Save and Close when you're ready.
    q82.PNG

 

Once done, let's create a journal entry to record the said expenses. Let me guide you how:

 

  1. Click +New, and then select Journal Entry.
  2. On the first line, choose the expense account for the equipment, software, or legalzoom purchase.
  3. Enter the purchase amount in the Debits column.
  4. On the second line, choose Partner's equity or Owner's equity.
  5. Enter the same purchase amount in the Credits column.
  6. Click Save and close.
    q83.PNG

 

Then, you can either create a check or an expense to reimburse the money using your "Owner's Bank" account. For more details, please see Step 2 outlined in this article: Pay for business expenses with personal funds.

 

Also, you can use the Attachments feature to record those PDF's (purchases) for audit purposes.

 

You'll want run an Account QuickReport to review these entries. To do that, you can go to the Accounting menu again. Select the expense account you've created, and then click Run report.

 

You can count on me if you need more QuickBooks tips. I'll be here to lend a helping hand.

View solution in original post

1 Comment
ReyJohn_D
Moderator

Record expenses from multiple sources before LLC formation

You're almost there, @hillderr_qns.

 

I've got some ideas on how to record business expenses you've paid using your own money. 

 

First, you'll need to create an expense account to track these expenses. Before you proceed, I'd suggest consulting your accountant for the best advice. If you don't have one, we can help you look for an expert through our Find-an-Accountant tool.

 

Please follow along below to get this done right away:

 

  1. Go to the Accounting menu, and then choose Chart of Accounts.
  2. Click the New button.
  3. Select the right expense Account and Detail types from the drop-down. If you aren't sure, you can also seek help from your accountant.
  4. Enter the purchase name like "Equipment purchases" in the Name field, etc.
  5. Click Save and Close when you're ready.
    q82.PNG

 

Once done, let's create a journal entry to record the said expenses. Let me guide you how:

 

  1. Click +New, and then select Journal Entry.
  2. On the first line, choose the expense account for the equipment, software, or legalzoom purchase.
  3. Enter the purchase amount in the Debits column.
  4. On the second line, choose Partner's equity or Owner's equity.
  5. Enter the same purchase amount in the Credits column.
  6. Click Save and close.
    q83.PNG

 

Then, you can either create a check or an expense to reimburse the money using your "Owner's Bank" account. For more details, please see Step 2 outlined in this article: Pay for business expenses with personal funds.

 

Also, you can use the Attachments feature to record those PDF's (purchases) for audit purposes.

 

You'll want run an Account QuickReport to review these entries. To do that, you can go to the Accounting menu again. Select the expense account you've created, and then click Run report.

 

You can count on me if you need more QuickBooks tips. I'll be here to lend a helping hand.

View solution in original post

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