45: Handling Business Expenses Paid Personally Whether You Are Starting A Business, You Are Self-Em
Recording personal funds in your business can be tricky and you want to make sure you are capturing and recording all of these transactions so that your business financial statements reflect all of your business transactions accurately. These personal funds may be in the form of an injection of additional personal funds you put into the business, or you may find yourself as the business owner making a purchase for the business with your personal funds. These purchases could be made with your personal cash, a personal check or even your personal credit card. Although mixing your personal and business funds is never recommended, there are situations where this does happen, and you need to make sure you are recording them correctly. In today’s episode, I am going to talk about how you should handle any business expenses that are paid by you personally and in the next episode, I am going to talk about how you should be recording any money you are putting into your business personally. I know these two topics are important to you as a business owner and I want to make sure you understand how you should be recording each of these situations. Listen in for part one of this series on personal funds and your business today as I help you ensure that any time you have a business expense that you pay for personally you record it correctly in your accounting and bookkeeping system. It doesn’t matter if you are using a computerized bookkeeping system like QuickBooks, Wave, Xero or FreshBooks or a manual system such as an Excel spreadsheet, you’ll know exactly how to record these transactions. Whether you are just getting ready to start your small business, you’re a solopreneur, entrepreneur, small business owner, virtual online bookkeeper or virtual assistant understanding the impact of any business expenses you pay for personally will help you to easily record these transactions in your bookkeeping system…
Get the full details and sign up for the Money, Faith and Business virtual event here:
Fill out the Contact Us form if you have a question or need help with your bookkeeping:
Grab Your FREE guide: 5 Essential Strategies For Stress-Free Bookkeeping:
Register For My 4 Step Framework For Creating A Profitable Bookkeeping Business (Or Improve Your Existing Bookkeeping Business) Masterclass Here:
Your FREE Online Virtual Bookkeeping Business Starter Guide & Success Path is waiting for you:
Sign up for a quick chat to see if starting a Virtual Online Bookkeeping Business is right for you:
Join Our Facebook Community: https://www.facebook.com/groups/womenbusinessownersultimatediybookkeepingboutique
Are you a bookkeeper looking to start, grow or scale your bookkeeping business? Join our FREE bookkeeper community here:
QuickBooks Online - Save 50% Your First 3 Months:
Show Notes:
Recording personal funds in your business can be tricky and you want to make sure you are capturing and recording all of these transactions so that your business financial statements reflect all of your business transactions accurately. These personal funds may be in the form of an injection of additional personal funds you put into the business, or you may find yourself as the business owner making a purchase for the business with your personal funds. These purchases could be made with your personal cash, a personal check or even your personal credit card. Although mixing your personal and business funds is never recommended, there are situations where this does happen, and you need to make sure you are recording them correctly. In today’s episode, I am going to talk about how you should handle any business expenses that are paid by you personally and in the next episode, I am going to talk about how you should be recording any money you are putting into your business personally. I know these two topics are important to you as a business owner and I want to make sure you understand how you should be recording each of these situations. Listen in for part one of this series on personal funds and your business today as I help you ensure that any time you have a business expense that you pay for personally you record it correctly in your accounting and bookkeeping system. It doesn’t matter if you are using a computerized bookkeeping system like QuickBooks, Wave, Xero or FreshBooks or a manual system such as an Excel spreadsheet, you’ll know exactly how to record these transactions. Whether you are just getting ready to start your small business, you’re a solopreneur, entrepreneur, small business owner, virtual online bookkeeper or virtual assistant understanding the impact of any business expenses you pay for personally will help you to easily record these transactions in your bookkeeping system…
Welcome Back…I know you’ve heard it a thousand times or more, you should never mix your personal and your business funds. But what happens when you are shopping, and you don’t have your business checking or your business credit card with you and you must make a purchase for your business? Well, today I am going to walk you through a few of the most common ways business owners run into this situation and the best ways you can record these transactions so that your financial statements can reflect all of the expenses you have for your business. Depending on the way your business entity is set up, the way you handle these transactions can differ, so make sure you talk with your tax professional to make sure you are following the correct procedures for your entity structure.
First, you want to find out if this expense is something you will be reimbursing yourself for or if you are just planning on contributing these funds to the business. If you are not planning on paying yourself back, you will normally do a journal entry to record the purchase and offset your equity account. When you are recording your journal entry, you will debit the account for the purchase. This account will normally be an expense account, and you will credit your equity account. This account could be called owner’s contributions, owner’s investment, or something similar. For example, say you went to your local office supply store, and you needed to purchase some ink for your printer, but you didn’t have your business checking account with you or your business credit card. You decide to purchase the ink and pay for it with your personal funds. You will want to keep the receipt to prove the purchase was made, and you would record a journal entry to debit your office supplies and you would credit your owner’s contributions account. Remember this is how you would record your transaction if you are not planning on reimbursing yourself or paying yourself back for the purchase at any time in the future.
On the other hand, if you would like to reimburse yourself, there are a couple of options. If you decide you want to reimburse yourself right away, you can write a check from the business to yourself and record this check with the account for which the purchase was made. So, following the previous example, if you went to the office supply store and you purchased ink for your printer and paid for it personally, you would simply write a check to yourself and you would record the check as an office supply. Remember to keep the receipt and make a note that it was purchased personally and reimbursed with the check you wrote out for the reimbursement. This method is most likely the simplest way to record any purchases you make for the business personally.
If you make the purchase for the business, but you don’t want to pay yourself back right away, you could set up a loan to yourself to track any of the expenses you are incurring and would like paid back at some point in time. When you do this, you would also need to record the transaction as a journal entry. Much like the first journal entry I mentioned, this journal entry would again debit the account for which you are making the purchase. In our ink example, you would debit your office supplies account and you would then credit your owner’s note payable account so that you can pay yourself back at some point in the future.
If all of this talk about journal entries and debits and credits are confusing you, I do want to offer one more solution for you if you are not reimbursing yourself for the business purchase you paid for personally. If you are using a computerized software bookkeeping system like QuickBooks, you can also create a zero-dollar transaction. This might seem like an odd thing for you to do, but behind the scenes, it is actually going to do the same thing as the journal entries I was talking about earlier. You can create a zero-dollar transaction by entering a check or even an expense. Either way, you will select yourself as the vendor and then in the accounts area, you will select the account to categorize the transaction to and enter this as a positive number. For our ink example, you would select office supplies. Then on the next line, you will select your owner’s investment account or your owner’s note payable account depending on whether you wanted to pay yourself back at some point in time or not, and you would enter that same dollar amount as a negative number. This negative amount will zero out the transaction and you will actually record a zero-dollar check or expense.
If you are struggling with your bookkeeping and are looking for some help with your bookkeeping, let me know. When you have a bookkeeper helping you with your bookkeeping, all you need to do is to provide your bookkeeper with your bank and credit card statements as well as any other data they would need to keep your books up to date. This can all be done virtually so you don’t even need to worry about them coming into your office. Most bookkeepers have their own software which can save you the cost of having to purchase the software on your own, but if you are already using an online bookkeeping system, you will need to grant them access to be able to pick up where you left off. If you are considering outsourcing your bookkeeping, it can be as affordable as $97.00 per month depending on the number of transactions you have. I want you to know that I am here for you if you ever have questions, need help with your bookkeeping or would like more information about how much it would cost to have your bookkeeping done for you. You can contact me by going to https://www.financialadventure.com/Contact-Us. I’ll also post a link where you are listening to this podcast so that you can easily contact me, and don’t forget to grab your free copy of the 5 Essentials For Stress Free Bookkeeping. This guide is helpful whether you are doing your own bookkeeping for your business, or you are doing bookkeeping for multiple businesses by covering the five essentials every business needs to do to have stress free bookkeeping. Grab your free guide by going to https://www.financialadventure.com/5essentials. And, lastly, if you are interested in joining me and thousands of other female entrepreneurs who are focused on having MORE free time, MORE margin in your finances, MORE assurance in yourself and your business decisions at the Money, Faith and Business Virtual Event, you can go to www.FinancialAdventure.com/Resources to get more details and register for the event. It starts on September 13th, 2021, so make sure you reserve your spot today. I’ll post this link in the show notes for you as well.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.
Commentaires