QuickBooks Online: Entering Expenses paid in CASH (or with owner’s personal account)

so I had this question that says how do recording QuickBooks expenses that I made in cash or with my personal bank account now I'm Hector Garcia CPA and a dance QuickBooks ProAdvisor I mean I go ahead and answer this two-part question it's actually really two entirely different questions in one and I'm going to use QuickBooks Online to show you that so we're in QuickBooks Online now the first thing I'm going to do is I'm gonna go into the accounting tab on the left hand side and click on chart of accounts in the chart of accounts I'm gonna identify that there is in fact a regular checking account in there this is probably my business checking account and I'm gonna leave that there that's fine I don't have a cash account a petty cash account I should probably create that because we're gonna answer that cash portion of that question so I'm gonna go ahead and click on new on the top right of the screen click on the green button and then choose on account type I'm gonna go ahead and select bank that's the option that we're gonna select and then under the detail type we're going to leave it in cash on hand and on their name when I call this petty cash so with this petty cash account I'll answer the question about how do I make expenditures through cash expenditures that I made in cash the other part of the question is what about expenditures that I pay with my personal bank account I'm assuming that the person asking this question is the owner of the business so when they say my personal bank account they mean that the owner is probably come England personal and business funds but if you are not honoring the business and you're making expenditures with your personal bank account that you're an employee that's an entirely different context because the business has to reimburse you basically the way you will record it is through that reimbursement check so let's talk about that cash transaction first and I will talk about the equity or the transaction made with the owners business or personal bank account for that matter so let's talk about the cash transaction first so we got this petty cash account which is a bank account in QuickBooks notice he has a balance of zero so what I would recommend is just use that account to the expenditures for example we went to Home Depot and bought some supplies so we're gonna click on the new button on the top left hand side and then we're gonna click on expense so we're just gonna record a regular expense transaction and nothing really changes here other than instead of selecting the chase regular business bank account we're gonna choose petty cash so the purpose of that petty cash account is to record those expenditures made in cash so I'm gonna type here Home Depot create a vendor as normal select the date that I made that expenditure on the payment method you can actually leave this blank if you want to or you can just select cash it actually doesn't matter whether or not you select something in there I think it's valuable to put it regardless and then you're gonna pick the category or the expense category the account that we're gonna use to classify this so let's say this is gonna be under office supplies and software and this was $50 and there is that's it that's all you do you created transaction the source account or the payment account it's gonna be the petty cash account and then you click on save and close now this is gonna pose a potential problem as we enter expenditures in the petty cash account that petty cash account is actually going to have a running negative balance because logically where did that money come from like how is it even possible for our business to make cash expenditures if it never had cash in the first place so it's a couple of ways that cash got to the petty cash account somehow one is maybe you made a sale and you receive the money in cash and if you don't record it in QuickBooks then you're gonna have this negative balance now let's assume that a customer paid us in cash how will we record that into the petty cash account well I'm gonna go in to new and then I'm gonna click on sales receipt and then let's say how customer Carlos I just created in there and let's say we sold Carlos via cash and deposited into our petty cash account we saw them some service for let's say $200 okay so in this particular case I'm recording money that I received in cash that probably went into that petty cash account so I'm gonna click on save and then close that and then go back into my chart of accounts and now it's a different story now I no longer have a negative balance I actually have cash in there I have the original 200 minus a 50 I just spent now let's say for example that I went to the bank and I deposited another 150 I deposited a 120 dollars from that petty cash account well the way that will work is I'm gonna go into new and then I'm gonna click on bank deposit then I'm gonna click the account this is the source account actually this is the destination account this is where the money is going to so I'm gonna put 120 dollars into this Chase my actual real Chase checking account and the money is gonna be coming from the original petty cash account and that's gonna be 120 dollars so when you deal with cash it gets a little bit complicated because not all the amounts are perfect right you got 200 others you paid 50 you deposited 120 and all you got 30 dollars left now if those $30 stay in your petty cash account and you're accounting for petty cash account you're good to go you can leave that there it's actually no issue if I study dollars disappear because maybe the owner puts it in his pocket or spent it in some personal thing then your job is to bring the petty cash account down to zero so that what you do that is I'm gonna go ahead and open the register here next to petty cash so we can see the entire history of it and let's say for example we're looking at this and there's $30 on access and maybe the owner took that money for themselves now we should record a distribution we should record an expense from the petty cash account into the owner's personal equity account so let me just go back for a second and let's see if we have an equity account for this purpose I'm gonna go down here into equity and notice I got a couple of equity accounts I have this account called open imbalance equity we're not going to touch that leave that one alone we got this account called owners investment that could work owners capital owners money shareholder country Oshin additional paid in capital anything with those names are gonna represent the owner putting money into the business I notice that there's another one here called owners pay and personal expenses which also represents members draw shareholders distribution dividend depending on the corporate structure them I have a different name but long story short it's an equity account and that really that's all that matters so we're gonna be using these equity accounts to manage money coming in and money coming out into the business so just to simplify things for a second this one here called owners investment I'm gonna go ahead and just make that one inactive so ignore that one for now I'm just I leave one account in there this one called owners pay and personal experience and then I'm gonna change the name of it again to make it a little bit easier and we should I call this owners money so owners money make it super drop that simple to understand it's just one account called owners money I'll click on save and close so the owner wants to take money for his own personal purpose a distribution that would be the account if the owner wants to put money that would be the same account so going back into this petty cash account I'm gonna go back and click on view register and then from the register I'm gonna go ahead and record the $30 distribution of the petty cash that's no longer in custody of any business employee or any any real sort of petty cash box or safe the money's gone and the owner took it so then that would be a distribution so we'll go ahead and create a transaction here I'm gonna click here it says I'd check the drop down menu and just click on expense as you can suspect that's actually the same thing as clicking on new and expense here's the actual same workflow the difference is it's in the register and it kind of looks like a spreadsheet so it might be easier to digest for some folks so here I'm gonna put let's put the owners name let's say the owner is me Hector so we're gonna put here Hector Garcia and then under the account this is the category the chart of accounts category here we're gonna put owners money because remember we only had that one account money to simplify things and then the amount here would be 30 and then we're gonna click on save and then that's done so we're basically accounted for cash transactions being spent coming in from a sale and also being distributed back to the owner or being spent in some sort of personal expense at the end of the day when I go back my petty cash is zero which is what I want but then when I run my profit and loss report we're gonna click on reports here and then go into profit and loss what we want to see let's do here we let's do all dates simplify things and what we're expecting to see here are the transactions that we entered so notice that we have a 200 our sale which was made in cash I never made it to the business account actually one hundred twenty dollars made it into the business account if you can remember and then we had fifty dollars we made in office expenses which was that trip to Home Depot the remaining cash so you notice that we can if we can do accounting even if it's in cash so just because it happens in cash and the money didn't jive or matched 100 percent of money coming in and out of the bank account it doesn't mean we can't account for it as a matter of fact you should account for everything regardless because you need to manage that business now within this topic let's do one more topic which is let's say for example I went to my bank and I want to take out let's say five hundred dollars in cash by writing out a check to cash people do this sometimes I'll write a check and I'll put paint or off cash and then some employee or the business owner will go to the bank cash it out and then half cash to make business expenditures or maybe even to make personal expenditures or distribute them so how would that work well basically you go into the new button and then you click on check so you're gonna write a check so we're gonna do a check and then we'll write the check out to cash so we'll create a vendor called cash and this happens sometimes and then this check is being written from our business checking account and let's say this is check two zero one five and then the category in this case would be petty cash and you don't even have to explain here in the description what the money is for or anything like that it's self-explanatory I wrote a check the cash is going into my petty cash to count I have a petty cash register I don't need to explain what the check is for so I'm going to put their 500 and then click on save and close so what happens now when I go back into my chart of accounts and then go into my petty cash account I now have five hundred dollars in there so as you can suspect if I go into Home Depot again and they spend four hundred eighty seven dollars the balance will stay in there so let's do that real quick let's go into new let's go to expense let's go to Home Depot and let's do four hundred and eighty seven dollars and we'll just change the date of that I have to make it a little bit different and then we'll do cash and then we'll click Save and close so now we got thirteen dollars left in the bank account now if $13 get lost or they were spent in some personal expense we should see all that out to 0 against owners money the same way we did it before so that real quick expense and then I study from the petty cash account we gave the money to Hector and it was owners money and it was 13 bucks save and close that account goes back to zero it's a wonderful and a beautiful thing now you also notice that the owners money account is now going to keep track of all these distributions and contributions all these ways that you spend money or you distributed money using the owners account so let's talk about the second part of that question which is how do I enter expenses that were made from the owners personal account now I don't recommend that you create the owner's personal accounts in QuickBooks that way I created a petty cash account this is why I think these two questions are a little bit different and let's say for example that I want to record let's say I bought a computer with my own personal account and I and again I don't want to create my own personal bank account here because I should keep my business and my personal separate so I do need to record that 2500 dollar computer that I bought so the way I do it is I'm gonna go into the check register of my owners money account so I'm gonna go to view register and then here I'm gonna click here says add no entry notice I don't have the same choices I had with a bank account which I had checked and expense and all that stuff in here there's only transfer and journal entry so I'm gonna pick journal entry and then click on that and what's really cool about this version of journal entry is you don't get to see debits and credits you see increase or decrease and it does make things a little bit easier to understand so I'm gonna increase my owners money investment into the business by making an expenditure with my own money so let's say for example I went to Best Buy and I click on save and then I'm gonna increase it by $2,500 and let's say I bought a laptop so I'm gonna call this one laptop 20/20 and then click on add and I'm gonna create it as a fixed asset where are you a fixed asset and we'll select detail type fixed asset computers I click Save and close now well that should be a fixed asset or an expense as an entire different video entirely different accounting situation but let's assume I want to create a fixed asset and enter it in there and I actually spent $2,500 with my own personal account in there so in the memo I can put here you know used personal account right or used personal Amex or used my home I could align your credit or whatever them you can put whatever you want in the memo to justify that so I'm gonna click on save then go back to chart of accounts and then notice that the owners money is now 27 sorry 24:57 and if I click on the drop down menu and click on run report which is a little bit better than the register for this context we can see everything that's going on in my equity account so I invested $2,500 in my business I took out 30 dollars of cash that disappeared from the petty cash account I took out $13 that also disappeared from the petty cash account because I spent it in whatever I wanted I'm the owner I could do whatever I want and then this keeps a wrong rolling tab of all the expenditures that I made out of my own personal account or the remaining of cash balances that belong to the business or belong to me personally within the same context let's do it this is a little bit different let's just go back into the chart of accounts real quick and let's say that I spent $100 let's say at the airport right some some baggage fee or whatever and I paid it with cash I had in my pocket as a business owner so how would that work well click on new up here and then we're gonna click on expense and let's say I paid American Airlines and I paid with petty cash and they category in this case would be travel in the description I could put something like extra baggage fee for Dallas trip whatever it is in $100 now I made this expenditure from not a petty cash account but with some sort of cash that was that I had in my pocket and I have to at some point go back and clean this up so I'm gonna go ahead and click on save and close and I'm back to a negative in my petty cash account but let's say I don't make any sales to replenish that petty cash account I don't get any cash from customers to replenish that petty cash account it truly just came from the business owners pocket right so at this point I'm gonna make a deposit into the petty cash account from the same owners money account so I'm gonna go in here in tin you and click on bank deposit and I'm gonna go into account the account that I'm depositing to it's my petty cash account and that's going to be from my owners money account and I'll put here $100 so I'm making this deposit I'll reel the posit into the petty cash account with the owners money account and you did make the owners deposit the minute that you took the cash out of your pocket and you made it available for business purpose that is the same thing as depositing cash into a petty cash account so I'm gonna go ahead and click on save and close and now let's pull up some reports so I'm gonna go to reports profit and loss let's do all dates and then click on run we'll see what that looks like I got my sails I got my office supplies I got my travel everything is perfectly accounted for let's pull the balance sheet which is also gonna tell another part of the story so we'll pull the balance sheet here well - all dates and then click on run notice my bank account is probably around the same balance it was before my belly cash is at zero but if I click on that there's an entire history of cash transactions being spent from the petty cash account being distributed or me putting money into the petty cash account this is actually a great place to know exactly what's been going on with these non-business banking transactions cash transactions those sort of things so this will give you a great history of that and that's why I love having that petty cash account then I got the fixed asset that I paid from a home personal funds that's the laptop that I bought and then we have owners money which if I click on that I also get a nice history of all the money coming in and money coming out into my owners money my equity my capital account as an owner of me taking money out of the business or investing into the business whether it's with my own cash or my own credit card account and so forth and that's it I hope that answered the question I hope it was cleared I would help you explain how executions actions work and if you like this video hit like add some comments didn't cover everything I was supposed to cover what should my next video be all about and I'll see you in the next one

Channel: Hector Garcia CPA

Views: 69,785

Rating: 4.955987 out of 5

Keywords: quickbooks, tutorial, online, accountant, bookkeeping, accounting, cash expenses, paid in cash, paid with personal account, expenses in cash, expenses paid in cash, expenses paid with personal bank account, quickbooks online

Id: kbwX5natX9c

Length: 19min 24sec (1164 seconds)

Published: Mon Mar 09 2020