Owner's Draw/Personal Expenses

christinenc1 · ‎November 30, 2021

Hello,

Since 2018 the business owner has been using an expense account called Owner's Personal Expenses to pay some personal expenses and then he reimburses his company for them. He should have been using an Owner's Draw account and I'd like to transfer the balance to the Owner's Draw equity account and zero out the Expense account. My question is what is the best way to do this? With a journal entry transferring the account balance? Also, will it affect the prior year tax returns, since they were completed with the prior year expense account totals?

Thanks!

Rainflurry · ‎November 30, 2021

Since there is a balance in the "Owner's Personal Expenses" account, I assume that means that the owner has not reimbursed the company for those expenses?

If that's the case, you can make a journal entry by debiting "Owner's Draw" and crediting "Owner's Personal Expenses". It will not affect the prior year's financial statements (assuming you date it this year) but it will cause the income statement for the period in which you date the journal entry to have a large reduction in "Owner's Personal Expenses".

The best way to do it would be to go back and change the expense account from "Owner's Personal Expenses" to "Owner's Draw" (equity account) for each transaction if there aren't a prohibitively high number of them. That would keep the books cleaner.

View solution in original post

JessT · ‎November 30, 2021

Hi christinenc1,

I can help you with the How-do-I's or the processes of recording the transactions. However, I can't answer questions on the accounting side. I recommend consulting a licensed professional about it. Then, you can get back to us if they have instructions that you find challenging to do in QuickBooks.

We're just around if you need further assistance. Take care and have a good one!

Rainflurry · ‎November 30, 2021

Since there is a balance in the "Owner's Personal Expenses" account, I assume that means that the owner has not reimbursed the company for those expenses?

If that's the case, you can make a journal entry by debiting "Owner's Draw" and crediting "Owner's Personal Expenses". It will not affect the prior year's financial statements (assuming you date it this year) but it will cause the income statement for the period in which you date the journal entry to have a large reduction in "Owner's Personal Expenses".

The best way to do it would be to go back and change the expense account from "Owner's Personal Expenses" to "Owner's Draw" (equity account) for each transaction if there aren't a prohibitively high number of them. That would keep the books cleaner.

christinenc1 · ‎November 30, 2021

Thank you JessT, I will let you know if I need any assistance.

christinenc1 · ‎November 30, 2021

Hello @Rainflurry,

Actually, he did make reimbursements and there's a negative balance of a couple hundred dollars, so the company owes him in the end.

There are about 90 transactions, but the nice thing is that I can change the category of all the expenses as a batch. Then I just need to change the deposits individually, but there aren't that many of them.

This is great, I just wanted to be sure not to affect the prior tax returns. Thank you so much for your help, I really appreciate it!

FritzF · ‎December 08, 2021

Hi, @Rainflurry.

I have reviewed the solution you’ve shared and it's correct and accurate. Thank you for sharing your inputs to help address the issue.

We love to see members supporting one another! Have a great day.

Anne87 · ‎December 29, 2022

I would like to join this conversation and ask you. This is not typical:

A personal expense, not yet reimbursed, has been done by error. Also, the owner paid for some business expenses with his proper funds. (Amounts were the same by chance).

Is this possible to post an offsetting entry to avoid the both reimbursements? So that both transactions zero out. I had an idea, but I was not sure if it may be a right solution in this case.

Thank you in advance for your replies.

Anne87 · ‎December 29, 2022

I would like to join this conversation and ask you. This is not typical:

A personal expense, not yet reimbursed, has been done by error. Also, the owner paid for some business expenses with his proper funds. (Amounts were the same by chance).

Is this possible to post an offsetting entry to avoid the both reimbursements? So that both transactions zero out. I had an idea, but I was not sure if it may be a right solution in this case.

Thank you in advance for your replies.

Rainflurry · ‎December 29, 2022

@christinenc1

This is an old thread, but I saw it pop back up and re-read my "solution". You probably figured out that the answer I gave was wrong - at least the second part. I'm not sure what I was thinking. The only solution is to make a journal entry in the current year - debit owner's draw, credit owner's expense. If you change the expense account to the owner's draw equity account for transactions in previous years, you will be changing the prior year's financial statements. My apologies.

Topics

Training

Community

Resources

Owner's Draw/Personal Expenses