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Senior Explorer *

How should an S Corp handle business expenses paid for by shareholder's personal credit card or bank account?

Hi All,

I'm new to double-entry bookkeeping. I have a client who has submitted all of his 2018 books and records to be entered/set-up in QB to send to his accountant. The business is an LLC and has elected to be taxed as an S-Corp. I have a dilemma - there is a personal credit card account in the wife's name (not sure if she is a shareholder) with an additional card in the husband's name. The husband's card is used for a majority of the business expenses (charges, recurring charges, etc.) and some personal expenses as well. To add to this, the full balance due on this credit card account is paid out of the business checking account. How do I set this up? Although the client has given me both personal and business documents, I only handle the business portion in QB and turn over all of the personal documents to the accountant. That said, I will need to record the credit card payments from the business bank statement in order to reconcile the bank statements... The accountant has given no direction. Help! 

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Best answer 05-24-2019

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Established Community Backer ***

Re: How should an S Corp handle business expenses paid for by shareholder's personal credit card or bank account?

@ctemple 

 

First thing is to try to make the shareholders understand that they need to dedicate the personal cards to the business and not use them for personal purchases. And that personal purchases, on a business card must be repaid to the business in a corporation.

 

I would have the CC accounts listed in QB. The key is going to be to record personal purchases and use the shareholder loan account as the expense when you record those. Then you just record the card payment as usual.

 

At some point the shareholders have to pay back the shareholder loan account, and saying that may help them to understand that they should not make personal purchases on the business card.

 

IMO if the wife is not a shareholder she should not be using her card for personal at all.

7 Comments
Super Explorer ***

Re: How should an S Corp handle business expenses paid for by shareholder's personal credit card or bank account?

Personally I don't think the credit card balance should appear on the balance sheet, it is not a liability of the company after all but in practical terms  it might be possible to include it and then journal out the balance at the end of the year to that director's loan account to leave the balance at zero and then reinstate the balance next day. The private spend should also be entered as director's loan account.

Established Community Backer ***

Re: How should an S Corp handle business expenses paid for by shareholder's personal credit card or bank account?

@ctemple 

 

First thing is to try to make the shareholders understand that they need to dedicate the personal cards to the business and not use them for personal purchases. And that personal purchases, on a business card must be repaid to the business in a corporation.

 

I would have the CC accounts listed in QB. The key is going to be to record personal purchases and use the shareholder loan account as the expense when you record those. Then you just record the card payment as usual.

 

At some point the shareholders have to pay back the shareholder loan account, and saying that may help them to understand that they should not make personal purchases on the business card.

 

IMO if the wife is not a shareholder she should not be using her card for personal at all.

Senior Explorer *

Re: How should an S Corp handle business expenses paid for by shareholder's personal credit card or bank account?

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Senior Explorer *

Re: How should an S Corp handle business expenses paid for by shareholder's personal credit card or bank account?

Paulg1969,

Thank you for your answer. I finally spoke to the account and he wants the personal charges as member distributions to show in the equity account as none of the personal expenses are deductible. From what I could see at the SOS registration, the wife is not a member. The accountant stated that this should not affect the balance sheet or the P&L. I'm a bit confused on how to set this up in QB to account for the legitimate business expenses and the payments to the card from the business account. Any help would be much appreciated. Thank you!

Super Explorer ***

Re: How should an S Corp handle business expenses paid for by shareholder's personal credit card or bank account?

Except that the card is a personal card. Its balance should not appear in the accounts at year end but for practical reason it could be used during the year. Perhaps an easy option would be that the owner of the card pay his own card and then to identify the business use only items to claim from the company. The key point being that the company shouldn't really be paying his card, it is his liability but we know in practice that people blur the distinction so the personal spend should be put to his loan account with the company and at the end of year the balance on the card cleared to this loan by journal only to be reinstated in the following day.

Senior Explorer *

Re: How should an S Corp handle business expenses paid for by shareholder's personal credit card or bank account?

Hi Paulg1969,

I'm still a bit confused - I may be really overthing this one. Can you detail it out for me? I believe your response is the best solution since the entity is an LLC and the accountant stated that the CC should not appear on the balance sheet or the P&L. Where would I post the CC payments made from the business bank account? Do I somehow need to track the business expenses from this card so that the accountant knows which part of the expenses are covered by the CC payments? I'm not sure where to begin setting up the appropriate accounts for this one. I really appreciate your help and your patience.

Super Explorer ***

Re: How should an S Corp handle business expenses paid for by shareholder's personal credit card or bank account?

My suggestion is that you use Quickbooks with regard to the day to day transactions but on the final day of your financial year move the balance to his loan account, only to reinstate it the following day. That way the closing balance does not appear in the business' accounts but it allows you to process the transactions.

Probably the easiest way to do it would be to post a receipt to the credit card for the balance at year-end to his loan and then a payment the next day.