How to fix personal charges with business funds...and vice-versa {QBO Tutorial}

hi everyone welcome back to the Clara CFO group Channel today we're going to talk about what happens when you are running your business normally you're keeping all your personal finances and your business finances separated but you accidentally charge a business item on your personal card or a personal charge actually sneaks onto a business credit card or something like that this happens to everybody we know it does and it's not a big deal we can actually handle it all in QuickBooks or whatever accounting system you have and I'm going to walk you guys through how to handle those situations and also like a couple considerations depending on if you have multiple owners or if you're a single owner I will walk you through the options that you have so if that sounds good and you've ever run into that and you're curious how to handle it this video is for you if you aren't already subscribed to the channel we'd love to have you here this channel is all about helping you with your business finances as a small business owner and ultimately we're trying to help kind of demystify some of this stuff and make it easier on you let's go ahead and talk about you know some of these situations that happen I know everybody finds themselves in this situation so like I've done this you know not too long ago where I had my business credit card associated with my Uber app and then because the last time I used it was for a business trip and then the next time I go to use Uber it accidentally charges to my business credit card because I forgot to switch the credit card before I booked the Uber and then it got charged to the business credit card that happens okay so now I have a personal expense on a business credit card that happens you know it might be a similar thing maybe you go to Costco and you're buying groceries for your family and you realize oh I need pins for work and you go over and you grab a couple office supplies while you're there and you run it all through and it's all on your personal card but you want to make sure that those business expenses actually get recorded to your business books for multiple reasons first of all you don't want that as a personal expense because the business really should be paying for those business supplies and you need to make sure that those expenses get recorded in your business books because that is a tax deduction so if it's fifty dollars of supplies you know you're it's going to lower your taxable income by fifty dollars so you wanna make sure that all those expenses get recorded okay now a couple things to think about and this is going we're going to I'm going to walk you through examples in QuickBooks so you can see how to actually do this let's go ahead and just hop into QuickBooks and I will show you guys how to handle this all right here we are in QuickBooks online and we're going to be in the bank feed section and so what I want to do is to Let's Pretend We're pretending here we're going to go through and say that okay this is on the checking account let's say that the checking account how to charge for 19.99 for The Squeaky Clean Car Wash let's say it was a personal expense you had your only had your business credit card on you and you were like you know what I'm just gonna run it I need my car cleaned I'm going to run the credit card and then I'll fix it later in the books now we're going to fix it in the books okay so Squeaky Clean Car Wash we have identified as a personal expense the first thing I would have you think and ask yourself is is this something that you feel the need to pay the business back for or do you want to just call it kind of an owner's draw okay so it might be like if the business really needs that money you might want to pay the business back or if you have multiple owners you might not want to mess with the equity section of the financials because that's where I'm leading to this so if you have multiple owners and you take a draw it might mean that your other owners also need to take that same amount so if you don't want to do that um there's two different ways to handle this so let's just say you're a single member owner and you don't feel the need to pay the business back because the business has plenty of cash and you don't need to worry about it so if that's the case what we're going to do is we're going to put this to a category called a shareholders draw or an owner's draw now I think that this sample company does not have a category called owner's draw so we're going to go ahead and create it so I'm going to go over here to Equity we're going to create an equity account and then we're going to create owner's equity and I'm just going to change the name to owner's draw some people call this shareholders distribution some people call it owner's draw like usually if it's a corporation and have shareholders distribution but it doesn't really matter necessarily what it's called you just need to know what it's for and so the description would be for distributions or owner expenses just going to put that there and so when we have a personal expense on a business card we're going to record it to owner's draw when we're okay with it affecting the equity balance and so for most of the time a single member has no problem recording this as an owner's draw if you did not and then you would just click add okay and then what that does is it moves it out of the business p l and it just puts it into owner's draw so it doesn't affect your taxes like it would not show up as a tax deduction this moves it out of that now let's say that instead of this being a let's say that you do have multiple owners and instead or you've decided you want to pay the business back for it let's say this was like a two thousand dollar charge and it was maybe like airplane tickets or something and you really need to pay the business back for that you would do you would create a different account and that's going to be a receivable account actually we're going to call it other current assets and this is going to be a loan two officers and this means and I'm going to change it to loan to owner so technically the business has loaned you money because it's on their credit card and you're going to need to pay it back okay so you're going to do that description is money borrowed you can put whatever you want here whatever makes sense to you and then we're going to do that okay so if you want to pay it back you create a loan account where your business is waiting to be paid back by you which would be a receivable from the business and you have to pay it back once that receivable is paid it will net to zero and it won't affect your p l again so that you don't have that tax effect of the transaction okay so that's two ways to handle if you have personal expenses on the business side okay and the big question is do you want to pay it back or not or are you fine just having it flow through Equity now the other side of this coin is if you have charged something on your personal card and you want to make sure that that gets either paid back by the business or you are recording it in the business because those are business expenses that need to be in your business p l so in this case you're not going to be in the bank feed because the transaction has not showed up anywhere in your business books you have to put it in the business books from scratch so the way that you do that is you create a journal entry okay and so you can go up here to New and then you go to journal entry that's where I am and so in this case let's say you had you used my scenario earlier you were at Costco and you bought office supplies so what you would do is you would book your office supplies let's see if they have a supplies so let's say there's supplies that you bought for fifty dollars and then you said Costco trip pens paper ink okay and then what you will book the opposite side of that to will be a payable now this could go two ways so you could say it's same thing it's kind of like are you okay just buying office supplies for the business and kind of saying okay this is a sort of a contribution to the business and I don't expect to be paid back you know something like 50 maybe you're okay not getting paid back by the business then that would be considered an equity contribution so I'll show you what that looks like first so that would be like we just created that owner's draw this could be an offset to the owner's draw account so if you maybe draw drew fifty dollars for something else this would offset that and actually look like you contributed some people have two separate equity lines owner's draws and owners contributions but really those two you can have two separate accounts for them but in this case we're just going to put it all to owner's draw and so this would decrease that owner's draw amount and make it look like you took out less from the business so this is what you would do in a situation that you don't want to be repaid okay and also I would recommend this only if you you're a single member owner that's the only time you would do this and then you would just save and close Okay because what this will do is it'll put that supplies now into your p l now I'd highly you need to do this okay save your receipt and attach it here because this transaction doesn't come from the bank it's just created out of thin air through a journal entry so you really need to make sure that you have an attachment here to prove that you have a legitimate business expense okay I highly recommend attaching receipts whenever possible and especially to journal entries because they just appeared out of thin air okay and so if you're to get audited you want to have support for this supplies otherwise there's no way to prove that this is actually a thing okay other scenario would be if you you want to be repaid by the business so if that's the case we're going to create a new account and in this case it would be a payable you can just create a liability account I'm just gonna instead of making an accounts payable because I don't want it to get lumped in with any other bills I kind of want this to be a separate line item I want this to go to other current liabilities and I'm going to create payable to owner okay and so this is amounts owed to business owner for expenses we can just leave it at that amounts owed to business owner okay and then we can save and close all right so now we have the supplies have now been put into the p l and then the payable to owner will show up on the balance sheet and then once you pay that money back you give the fifty dollars back to the owner or you write yourself a check for that fifty dollars that will clear out this you want it will offset the offset will be this payable to owner account okay so like if that 50 check clears on your bank feed then you will code it to the payable to owner because then it will clear all of that out okay and this is how you get expenses into the system when you have bought them with your personal card okay easy peasy all right so I hope that makes it really clear for you I and again this happens all the time all the time even though we try really hard to separate personal business as a small business owner these things do happen because life happens okay it's not a big deal to get your accounting records correct so make sure that you are saving those receipts attaching it to the transaction and also just make sure you're recording these things in the right place so if this video is helpful please give it a thumbs up I really appreciate any of this when I can get some feedback on these videos as well so thank you for being here and we'll see you soon foreign [Music]

Channel: Clara CFO Group

Views: 15,007

Keywords: personal expenses on business card, business expense on personal card, paid business expenses with personal money, quickbooks online personal expenses, QBO journal entry, owners draw for personal expenses, how to record personal expenses in quickbooks, how to record personal expenses paid with business funds, business purchases on personal card, business and personal expenses mixed up, clara qbo tutorial, clara CFO QBO, Quickbooks Online tutorial, QBO tutorial

Id: pqT2Ky4_9ME

Length: 12min 11sec (731 seconds)

Published: Thu Jun 22 2023