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I used personal funds for LLC bus. expenses before bus. checking was opened. Once opened, I deposited personal funds to cover business expenses. How do I enter in QB?

Hello,

My wife and I have a two member LLC that was formed in March 2016.  A business checking account was not opened until Aug 2016.  We began purchasing equipment for the unofficial business in August 2015 with personal credit cards and personal cash.  The business has not yet brought in positive cashflow so we have been using personal funds to cover our small monthly expenses, several cash deposits have also been made into the business account to cover these expenses.  

I have seen many different answers for this type of scenario but nothing that is exactly what I need.  We are using QB Online.  My questions are:

1.  How do I enter the expenses that were purchased with a personal credit card?

2.  How do I enter the personal funds deposited into the business account?

Thank you for your help!

Solved
Best answer 12-10-2018

Accepted Solutions
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Established Community Backer ***

@ daheard I agree that you need to work with a cpa, but...

@ daheard

I agree that you need to work with a cpa, but specifically a tax cpa.

If you live in a community property state, you can be a "Joint Venture Sole Proprietor" wherein the marriage owns the business and not one person, or you may be a partnership.

The things you purchased in preparation for starting the business are personal property, until the day you put them in the business as starting equity.

when you open a business bank account does not matter, create and use a cash account in the chart of accounts for transactions made before the business bank account was created.

So, first your tax cpa needs to determine if you are a sole proprietor or partnership both for your state and the feds - that controls how you make accounting entries.  LLC has nothing to do with it, that is a state only form of liability protection.

For a company taxed as a sole proprietor or partnership, I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)
[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

So when you deposit cash into the business bank account, you use the equity investment account as the source account for the deposit

You should have a dedicated CC for the business, whether it is personal or business at the CC company makes no difference to your accounting, what is important is that it starts with a zero balance and only business transactions are paid with it.

equipment is somewhat more complicated, create the asset account for the equipment, fixed or current asset depending on what it is and what it qualifies for under the tax rules - hence a need for a tax accountant.  You can use the register for the asset account to make the starting entry, use the date the equipment was turned over to the business, the cost, and use the equity investment account in the account block.

For other operating expenses I prefer to use an owners bank account to make the entries clear about what happened in the event someone asks in the future

1. Create a dummy bank account called owners, use write checks (do not print them, they are just a form for entering transactions) on that account to enter and pay the bills/expenses.
2. When you are finished, the balance will be negative, make a deposit for the total amount and in the account block select owner equity, or better owner equity investment

You need to start off with a tax cpa, and of course you need a basic understanding of accounting, if for nothing else so what the tax cpa tells you makes some sense.

I would suggest you print this page, and take it with you to the tax cpa you find.  Call around other small businesses and get recommendations is my suggestion.  One thing I think is important to know is whether or not the cpa will take the time to explain things you ask, in terms you understand.
Good luck
5 Comments
Highlighted
Established Community Backer ***

@ daheard I agree that you need to work with a cpa, but...

@ daheard

I agree that you need to work with a cpa, but specifically a tax cpa.

If you live in a community property state, you can be a "Joint Venture Sole Proprietor" wherein the marriage owns the business and not one person, or you may be a partnership.

The things you purchased in preparation for starting the business are personal property, until the day you put them in the business as starting equity.

when you open a business bank account does not matter, create and use a cash account in the chart of accounts for transactions made before the business bank account was created.

So, first your tax cpa needs to determine if you are a sole proprietor or partnership both for your state and the feds - that controls how you make accounting entries.  LLC has nothing to do with it, that is a state only form of liability protection.

For a company taxed as a sole proprietor or partnership, I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)
[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

So when you deposit cash into the business bank account, you use the equity investment account as the source account for the deposit

You should have a dedicated CC for the business, whether it is personal or business at the CC company makes no difference to your accounting, what is important is that it starts with a zero balance and only business transactions are paid with it.

equipment is somewhat more complicated, create the asset account for the equipment, fixed or current asset depending on what it is and what it qualifies for under the tax rules - hence a need for a tax accountant.  You can use the register for the asset account to make the starting entry, use the date the equipment was turned over to the business, the cost, and use the equity investment account in the account block.

For other operating expenses I prefer to use an owners bank account to make the entries clear about what happened in the event someone asks in the future

1. Create a dummy bank account called owners, use write checks (do not print them, they are just a form for entering transactions) on that account to enter and pay the bills/expenses.
2. When you are finished, the balance will be negative, make a deposit for the total amount and in the account block select owner equity, or better owner equity investment

You need to start off with a tax cpa, and of course you need a basic understanding of accounting, if for nothing else so what the tax cpa tells you makes some sense.

I would suggest you print this page, and take it with you to the tax cpa you find.  Call around other small businesses and get recommendations is my suggestion.  One thing I think is important to know is whether or not the cpa will take the time to explain things you ask, in terms you understand.
Good luck
Established Member

Is there a reason/theory for using the write check/make d...

Is there a reason/theory for using the write check/make deposits option vs using a journal entry to record the info? Just wondering what the thought process is behind this method vs a JE (your experience is valued, asking to better understand).  Smiley Happy
Established Community Backer ***

journal entries bypass reporting in QB.  It is not design...

journal entries bypass reporting in QB.  It is not designed to be used as a journal entry system, and in some instances a journal entry can mess things up.  Best to use the system as designed
Established Community Backer ***

JE are not treated as Payee-related, such as checks to pa...

JE are not treated as Payee-related, such as checks to pay subcontractors. JE do hot allow you to list Products, Service or Items, such as Labor and materials. That means you cannot use Quantity and Cost and Price for the same thing you bought that you also might sell. JE is never a Sale. It doesn't provide for "computing" so no Sales taxes. A JE is not used for anything where your program has Functions for that same thing, such as Banking Functions are checks and deposits, not JE. You don't use JE for AP; that is Bills and vendor credits = use the program you bought and paid for, using the tools that are provided. We don't do "debit-credit" when there are Tools for that function. Credit Card management is done using the Credit Card Charge entry screen.

Worse, JE just bypassed Cash vs Accrual Basis reporting, making a mess of the financial reports and leading CPAs to want to make even More entries, trying to bring things back into perspective and making it worse.
Established Community Backer ***

First, you already incurred this in 2015 but call it "uno...

First, you already incurred this in 2015 but call it "unofficial" and that is something you need to review with your own CPA. You cannot Delay reporting, just because it isn't profitable.

Next, the CPA will confirm if you are entitled to call this Equity or Loan. We cannot confirm this with you over the internet; we don't have access to the LLC formation documents.