Accounting for money I have paid into business.

MarkH1977

We need to create a balance sheet for our annual return, but are not sure if we have accounted for money we have paid into the business correctly.

Example.

We paid for web development out of our own account and want to include this as a business expense.

Should we:

Show the expense only....

Add Record - Expense - Web Development - Owner investment drawing.

Or 

Should we show the money as an income and an expense ie the money coming in then leaving?

Add Record - Income - Web Development - Owner investment drawing.

Add Record - Expense - Web Development - Owner investment drawing.

Bruce_C49

The money you spent should be debited to web development expenses and the credit to shareholder loans (corporation) or proprietor capital (unincorporated business).

MarkH1977

Thanks for your response Bruce.

So for example we spent £2000 on web development from a personal account.

Are you saying we should do the following.

1. Add income for £2k as web development and create an account called "shareholder loans" to indicate we loaned this money to business.

2. Add expense as £2k for web development. What account should we list this payment as coming from as this was paid from a personal account? Would it be owner investment/drawings maybe?

Am I on the right page here?

Alexia

Nearly, @MarkH1977!

You'll start by creating a "Shareholder Loan" account in Wave. I like treating that like a credit card because it makes it really easy to handle paying receipts and bills out if it.

Once that's done, just create an expense transaction to that account, categorized to Web Development. When you're ready to pay back that loan, you'll just need to make a transfer from your bank account to that Shareholder Loan account.

MarkH1977

Thanks for your response.

So we create the shareholder loan account and an income payment which shows we have used personal funds for web development.

The funds were then paid to a web developer, so how do I account for that expense?

I am assuming that I have to show the shareholder loan as income then leaving as an expense to the web developer?

Alexia

Hi, @MarkH1977.

If this is just being paid with your personal account, you don't need to consider any income. Just record an expense and choose that loan account as the payments account (if you did treat it as a credit card, that is). Your loan account will act just like a credit card, which means that recording an expense to it will increase the balance, which represents an amount you owe.

Alexia

Hi, @MarkH1977.

Alternatively, you might find it faster to just use the Owner's Investments/Drawings account as a payment account for that expense of $2,000, as you suggested earlier in this discussion. You could see the total spent on your Account Transactions report for Owner's Investment/Drawings.

Repaying it would just be a matter of creating an expense transaction from your bank account categorized to Owner's Investment/Drawings.

@Bruce_C49, how would you recommend handling this? Would it be best to categorize this transaction this way, or to use a liability account?

MarkH1977

Thanks Alexia. By accounting for our owner investments into the business using this process, will this create the correct output when we generate a balance sheet using wave to use in our annual return to show assets and liabilities etc?

Bruce_C49

If the business is unincorporated, the credit should be to proprietor capital. The debit can be to the expense itself.

MarkH1977

Thanks Bruce. And if the business is incorporated, would the process differ?

mayank646

@MarkH1977 I am in the same situation were you able to find an answer ? Currently what I have done is all the money spent on the business by owners from their personal account has been added as expense & then when the company is paying back its marked as an income but categorized as refund to shareholder