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Sheen Solutions
Level 2

How to record purchase using owners personal funds

The owner of the   purchases items  for the business  which is for resale. These are considered inventories. How do I record this  in quick books. I am currently recording it by journal entry to owners equity   and  inventory(current asset). How does this show up in the purchases account.?

I am  doing it correctly?

Solved
Best answer July 09, 2020

Best Answers
Adrian_A
Moderator

How to record purchase using owners personal funds

Yes. You're doing it correctly, Sheen Solutions.

 

I'm here to help you record the purchases in QuickBooks Online.

 

First, we'll have to create a new credit card account. This will be used to gather all the purchases using the owner's personal funds. Here's how:

 

  1. From the Accounting tab, select Chart of Accounts.
  2. Click the New button.
  3. Select Credit Card as the Account Type, and Detail Type.
  4. Give it a Name.
  5. Click Save and Close.

 

Second, we'll have to create an expense transaction to enter the details of the purchases. Let's make sure to select the credit card account we created.

 

Lastly, create a Journal Entry if you want the purchases to end up in the Owner's Equity account.

 

In case the owner wants to reimburse the purchases to themselves, they can write a cheque and then enter the total amount. Then, select the credit card account. Here's an article for the step to do it: How to write a cheque.

 

Let me know if there's anything that I can help. Keep safe!

View solution in original post

4 Comments 4
Adrian_A
Moderator

How to record purchase using owners personal funds

Yes. You're doing it correctly, Sheen Solutions.

 

I'm here to help you record the purchases in QuickBooks Online.

 

First, we'll have to create a new credit card account. This will be used to gather all the purchases using the owner's personal funds. Here's how:

 

  1. From the Accounting tab, select Chart of Accounts.
  2. Click the New button.
  3. Select Credit Card as the Account Type, and Detail Type.
  4. Give it a Name.
  5. Click Save and Close.

 

Second, we'll have to create an expense transaction to enter the details of the purchases. Let's make sure to select the credit card account we created.

 

Lastly, create a Journal Entry if you want the purchases to end up in the Owner's Equity account.

 

In case the owner wants to reimburse the purchases to themselves, they can write a cheque and then enter the total amount. Then, select the credit card account. Here's an article for the step to do it: How to write a cheque.

 

Let me know if there's anything that I can help. Keep safe!

View solution in original post

Sheen Solutions
Level 2

How to record purchase using owners personal funds

I know I will have to pay the owner by doing a check from the company  bank account and post it to the credit card account in quick books.

However the balance sheet will still have this amount in owners equity. Explain

Adrian_A
Moderator

How to record purchase using owners personal funds

Thanks for getting back to me, Sheen Solutions.

 

There's nothing to worry about when the amount still shows on the Balance Sheet report. 

 

An equity account will display on both the Balance Sheet and Statement of Equity report. This represents the amount of equity in your company at a certain time. This also means that this is the assets your company holds net of any outstanding liabilities.

 

I've added this article for more information: Understanding the Equity Accounts on Your Financial Statements.

 

Feel free to get back to me if you have other concerns. Have a great day ahead!

Triniant
Level 1

How to record purchase using owners personal funds

A year later.  But this solution might be useful to you or others. 

 

I have the same issue as having to make some purchases using my personal cash and credit cards.  Since I only intended to invest $xxxx into my business, I was concerned that once I hit that limit, then the excess amount would be  incorrectly classified.  I wanted to be able to either reimburse or converted into a loan to the business.  So I did not want to put it directly into an equity account.

 

My accountant's treatment was to create a sort of "clearing account" for me to transfer the out-of-pocket spend, then transfer the amount I wanted to put as equity. The uncleared balance shows up as a current liability on the balance sheet.  Reimbursements are debited from this account. 

 

Any money from the "owner payment" accounts not yet transfers shows up as a current asset.

 

In setting this up in QB: 

 

  1. Create new payment types eg "Owner Cash", "Owner Credit Card".  (I wanted to know what my out-of-pocket spend very easily, by the method of payment. I also set up a separate account for each currency I use.) 
  2.  Create a current liability account called "Due to Related Party". At the end of each year transfer the balance of each "Owner payment account" to the Due to Related Party. 
  3.  Create journal entry to transfer all or part of this into the Owner's Equity. 

 

PS:  I've now reached the limit of what I want to "invest", but I've not done my annual review yet with the Accountant, so I can't say what happens yet with the conversion of the balance to balance to "loan" in terms of setting it up on QB.