How to record business transactions from a personal account?

AlexC_AUAlexC_AU Member Posts: 5

My business is not making enough money for me to pay subscription fees from my business account. So, I use my personal credit card for such purchases. In hindsight, I can see how that was a bad idea.

How do I record those business transactions from my personal credit card? I have been using the following:

Account: Owner Investment / Drawings
Deposit or Withdrawal: Deposit.

But now under category that should be i.e. Computer - Software it displays as Refund for Computer - Software. That doesn't sound right. Right?!

Thank you :).

Alex

Comments

  • KarlAviuKarlAviu Member Posts: 20

    Hi Alex,
    It really depends on your business or trading structure (sole trader, partnership, company, trust).
    For business and auditing purposes, it would be best not to mix your personal transactions with your business to avoid lengthy messes down the track.

    Regarding your query... if it's a business expense/purchase, you would allocate to the correct type of expense account/category (dr expense) and the other credit side of entry if the personal credit card that you were paying from.... this will probably a loan to a business (since the business is borrowing money from the owner's personal funds).

    If there is a liability account you would allocate to this. Again it really depends on your business or trading structure.

    Hope that helps.
    Karl

    edited August 23, 2020
  • AlexC_AUAlexC_AU Member Posts: 5
    Hi Karl,

    Thank you for your reply.
    My business structure is a company.

    In hindsight I would have not used my personal credit card but what is done, is done.

    So, do I use Owner Investment/Drawing category or whatever category is appropriate for the expense? Or should I create account called Loan to Business?

    Thank you again for your help :)
  • KarlAviuKarlAviu Member Posts: 20

    Hi Alex,
    Since it is a company, you need to create a Liability account (you can name it as Director's Loan - Liability Account). If you owed a company's money then an Asset account need to be created as well using the similar name (Director's Loan - Asset Account) to make things clear but for different purposes.

    Back to your original query. Once your liability is created simply allocate to Director's Loan Liability Account.

    Two things are happening here.... Your expense account is debited and your new liability account is credited as well (double entry accounting). So essentially your expense went up (increase) and your liability account went up (increase) as well.

    Regards
    Karl

  • KarlAviuKarlAviu Member Posts: 20

    My example above is a good fit for bank or credit cards accounts (personal credit card or other personal bank accounts) that are not in the company's books. in other words, your personal bank accounts or personal credit card accounts shouldn't appear in your company's books - just the business transactions.

  • AlexC_AUAlexC_AU Member Posts: 5
    Thank you so much for your explanation.
    I really appreciate it 😃
  • KarlAviuKarlAviu Member Posts: 20

    No worries Alex and your are most welcome. Assuming this is your case, in wave the journal transaction under the more drop down menu will help you accomplish this instead of using the add income or add expense.

    Cheers
    Karl smile:

  • AlexC_AUAlexC_AU Member Posts: 5

    I have been using Add Expense to add all my purchases from my personal credit card...I’ve got so much to learn.
    Would you be able to provide an example on how to create (fill out) Journal transaction, in shape of a screenshot if possible please 😃.

  • KarlAviuKarlAviu Member Posts: 20

    Hi Alex,
    Sure not a problem... Will post two journal transaction samples using office supplies expense paid for from personal funds or personal credit card... 1. Without sales tax in expenses and 2. With sales tax in expenses.

  • KarlAviuKarlAviu Member Posts: 20

    First things first

    Step 1 in setting up your liability account

  • KarlAviuKarlAviu Member Posts: 20

    Step 2. Go to Accounting menu and click transactions.

  • KarlAviuKarlAviu Member Posts: 20

    Step 3. Click More drop down menu then add journal transaction

  • KarlAviuKarlAviu Member Posts: 20

    Actual transaction recording - Office supply as sample expense with no sales tax and a liability account - director's loan. Then looking at our balance sheet and profit and loss to see such effects.



  • KarlAviuKarlAviu Member Posts: 20

    This time let's include Sales Tax in our expense transaction and looking at our balance sheet, profit and loss and sales tax report.




    Kind regards
    Karl

  • AlexC_AUAlexC_AU Member Posts: 5

    Thank you so much. You really went above and beyond. I really appreciate your time and effort 😊

  • detailingkingdetailingking Member Posts: 6

    @KarlAviu If in your example i then bank transfer the $150 from my business account to my personal account. How do i clear the liability in in wave for the $150? I know its a debit to the liability and credit to cash, but how do you hit cash in wave?

    Thanks!

  • KarlAviuKarlAviu Member Posts: 20

    @detailingking hi there, your cash in wave should be a bank account (cash at bank) which is probably under asset. Hope this helps...

Sign In or Register to comment.