Recording Business Expenses Paid from Personal Account

LCP

What is the best way to record business expenses paid from a personal account? I have an S-Corp and work from home so I attribute 7% of certain personal expenses to my business and track this via receipts in my business profile.

I had created a "Personal" cash and bank account in the chart of accounts under my business profile but it appears on my balance sheet, which doesn't seem right.

If I record them as a withdrawal from my business account then I'm unable to reconcile them with my business statements since they were paid from a personal account.

If I record them as owner drawings it looks like I double-dipped on my balance sheet since I transfer money from my business to personal accounts, which is also used to pay for these types of expenses.

Mikeg

@LCP,
The most appropriate way to handle expenses paid for with personal funds is through a journal entry. The first thing I would suggest is to remove the Cash account you created. Only assets and liabilities that are those of the business should be presented. If you transfer money to yourself beyond payroll, then those payments are categorized as an owner draw (S-Corps call them Distributions). If you want to be reimbursed for let say home office expense, you should document your rationale as how you determined the amount and then do a journal entry to debit Office Expense and credit Owners Draw (Distributions). Shoot me an email and I will reply with a template I give to my clients to document Home Office Expenses. We then use that template to record the Home Office expense.
Hope that helps.

franc23

I see another option listed here for reimbursements.
https://support.waveapps.com/hc/en-us/articles/115005928103-How-to-account-for-reimbursements

Is there a difference between the two and if so, which one is better?
I also see that Wave has been working on adding attachments to transactions - hopefully soon. That will let us document receipts in the same place as well.

JulianP

Hey @franc23 !

The reimbursement Help Center article you attached is a guide on how to account for purchases made for your business by someone else. Your best bet here is to follow MikeG's owner drawing workflow. We have another Help Center article here that can shed some more light on this.

detailingking

What does this example journal entry look like? debit to what and a credit to what?

Mikeg

@detailingking,
Debit the appropriate type of expense i.e. Office Supplies and credit either Owner Contribution or if you are treating as a loan, then credit Owner/Shareholder loan.

detailingking

Thanks @Mikeg If these transaction got auto imported off my business checking (As I transferred the money from bus checking to "pay back" my personal account) The bank statement is showing as negative numbers from my business checking account. Should I delete those transactions and just key the JE manually instead?

Mikeg

@detailingking,
I'm sorry I am a bit confused. What transactions were auto imported from business checking? If both the charges and payment were made from the business account then there is no need for a journal entry. Could you provide an example of a transaction?

detailingking

@Mikeg Hi Mike sorry for the super late reply (never saw the notification).

I have two scenarios

1) 3 credit card transaction on my business credit card that imports into wave. Inadverntly i did not notice that I was paying my first three statements from my personal checking account and not my business checking account that is connected to Wave. I transfered as a lump sum the total of those three credit card payments ($2930.77) out of my business checking into my personal checking. In my checking account I have a $2930.77 that I dont know how to properly account for. And I have their corresponding credit card payment rows sitting orphaned. Credit card payment row $1132.89, $1278.09 and $519.79 (adds to 2930.77)

2) Second I have 12 transactions that I put on my personal credit card when starting out that sums to $1515.01 that I did create transfer out of my business checking account into my personal account. Now I have these 12 transaction rows but im not sure how to account for them.

Any help would be appreciate as Im trying to get my books right before taxes. Thanks Mike!

oklamy

I am also unsure of how to reconcile this same problem that detailingking is talking about. any help
@mikeg would be appreciated

Mikeg

@detailingking and @oklamy

For item 1 - You would categorize the Payment to credit card (showing up in green) as deposit from Owner in the drop down. This is giving you credit for the payment that made from your personal funds. The disbursement you made to yourself would be categorized as an Owner Draw.

For item 2 - There are 2 options on how to record. To me the easiest way is via journal entry. Create a journal transaction and debit the appropriate accounts and credit Owner Investment/Drawing or create a loan from owner (liability). So for example, let's say you purchased some office supplies ($100) and paid for an attorney ($250) to set up your business. Debit Office supplies 100 Debit Professional Fees 250 and credit Owner Investment 350.
The second option is to create an expense from the transaction journal. You will add the date, description, category, and fill in the amount. You will need to adjust the Account so as to give the owner credit since it did not come from a bank account. Under Account select Owner Investment.
Hope that helps