46: Recording Personal Money Put Into Your Business Whether You Are Starting A Business, You Are Se
Even though you know you shouldn’t be mixing your personal and business funds together, we know it happens, and I totally understand that there are times when this may be happening in your business. I have seen many times when cash falls short, and the business owner needs to inject additional funds into the business. Where does this money come from? Well, to be honest, most often, it is the business owner using their personal funds to help increase the cash needed in the business. In today’s episode, I am going to cover how you should be recording these personal funds you may be depositing into your business. 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 deposits you make into your business from your personal funds. 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, making sure you are correctly recording any personal funds you put into your business will be extremely important. These amounts are not considered income or sales and should not be recorded as additional income in your business, so listen in so that you make sure you don’t overstate the income in your business by recording these funds incorrectly…
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Show Notes:
Even though you know you shouldn’t be mixing your personal and business funds together, we know it happens, and I totally understand that there are times when this may be happening in your business. I have seen many times when cash falls short, and the business owner needs to inject additional funds into the business. Where does this money come from? Well, to be honest, most often, it is the business owner using their personal funds to help increase the cash needed in the business. In today’s episode, I am going to cover how you should be recording these personal funds you may be depositing into your business. 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 deposits you make into your business from your personal funds. 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, making sure you are correctly recording any personal funds you put into your business will be extremely important. These amounts are not considered income or sales and should not be recorded as additional income in your business, so listen in so that you make sure you don’t overstate the income in your business by recording these funds incorrectly…
Welcome Back…In the last episode, we talked about how you would record expenses that you pay for in your business with your personal funds. In today’s episode, I am going to walk you through how you would generally record personal funds you are depositing into your business. Depending on your entity type, you may need to record your funds differently, so make sure you talk with a professional such as your tax preparer or accountant so that you are reflecting your cash infusions correctly in your business financial statements. Most importantly, you want to make sure you don’t treat these funds as income or sales. The last thing you would want to do is overstate your overall income with funds you are personally depositing in your business account.
First, you will need to decide if the personal funds you are putting into the business are going to be an investment into your business or if you would like to be paid back these funds after a certain period of time. You need to understand this so that you can record the money going into your business correctly.
Next, I first want to say that there are many different entity types to choose from when you start a business. I am going to save the discussion of what kinds of entity types are available for an episode in the future, so in this episode, I will keep it simple by speaking in a general sense for most businesses. When you first start your business, any personal funds will normally be classified as equity. When you make the deposit into your business account, you will normally record these funds as equity. Your equity accounts are located on your balance sheet. Your equity account may be named something like Owner’s Investments. Throughout the life of your business, if you deposit additional funds into your business and do not expect a repayment from these personal funds, you will continue to record them as equity and you could continue to use the Owner’s Investment account. When you look at your balance under the equity section, the Owner’s Investment account will show you a running balance of this account. This will tell you exactly how much money you have injected into the business from your personal funds as owner’s equity.
On the other hand, if you expect to be paid back these funds at some point in time, you will need to show these personal funds you deposit into your business account as a loan or note payable. Loans and notes payable are a liability account and show up on your balance sheet as well. A liability account you set up for a loan the business needs to pay you back for could simply be set up as Owner’s Note Payable, or you could list the Note Payable with your name as well. Any additional personal funds you loan to the business would be tracked in this same manner. You would be able to look at your balance sheet to see the total amount of money the business owes you for this loan, or you could look into that specific account to see any personal funds you put into the business as well as any payments the business has made back to you here as well. This is an easy way to track how much money the business owes you at a specific point in time. I do want to mention, as with any loan, you want to make sure you have proper loan documents with the details of the loan you are making to the business. These documents should be prepared by a professional and should contain information such as the terms of the loan including repayment obligations.
When you are using a computerized bookkeeping system to record your transactions, these transactions are automatically recorded, and the balances are up to date and easy to see when you look into each account. If you are using a manual bookkeeping system or a spreadsheet such as Excel for example, you will need to keep track of each account in a separate column so that you can easily see the balance when you record your transactions.
The most important thing to remember is that you really want to make sure you know where the funds are coming from when you are recording deposits into your business. If the deposit is from sales or services, you will record these amounts as income, but if the money coming into the business is from you personally, whether it is a liability or equity, make sure you record your transactions correctly so that you are not overstating your income by these amounts. By including a description of where the deposit is coming from it will be helpful when you look back on your transactions, so you know exactly where the funds came from.
Remember, my goal is to help simplify some of these complicated tasks when you are doing your own bookkeeping, and I want you to know 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, 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.
