Many times a business owner pays out of his or her own pocket for expenses that belong to the business. Examples of this include costs incurred while traveling to a client or purchases of business supplies. Two questions then arise: 1) how can the business owner receive the money owed to him or her, and 2) what is the proper method of recording these transactions?
If the business owner wants immediate reimbursement and the funds are available, a reimbursement check from the business can be created by categorizing the expense of the check to the appropriate business expense accounts.
For example, let’s say Owner X spent $50 on office supplies. Use the “write check” feature in QuickBooks to generate a check payable to Owner X for $50, and then categorize the expense to the appropriate expense account.
If reimbursement is not required immediately, or if funds are not available, the expense should still be recorded. Use QuickBooks to record the expense in the appropriate account and the amount owed to the business owner in another account. Note that the account name and type used to track the amounts owed depends upon the legal structure of the business. If there are shareholders or members, the amount owed can be categorized to a shareholder or member loan liability account. Alternatively, if the business is a sole proprietorship then the amount owed can be categorized to an Owner’s Contributions and Drawing equity account. We’ll assume that there are shareholders and a loan liability account for the following example.
Let’s say Owner Y made an out-of-pocket purchase totaling $250 for office supplies, but does not require immediate reimbursement. In QuickBooks, this transaction can be recorded by using the register for the Shareholder Loan Account.
From the home page in QuickBooks, click on the “chart of accounts” icon. Find the Shareholder Loan Account on the chart list and double click it. The next window that opens looks like a checkbook register. Enter the transaction details in this window, including: the date of purchase, the name of the business where the supplies were purchased from, and the amount – in this case the $250. Click the record button and you’re done! The amount of the loan account is increased showing what is due to the owner for later payment, and the expense is recorded.
To simplify future navigation to the Shareholder Loan Account, you can add a shortcut to this register by adding it as an icon in the Icon Tool Bar. When the Shareholder Loan Account register is opened, click “View” on the menu bar. Next, select the text displaying “Add ‘Shareholder Loan’ to Icon Bar.” The “Add Window to Icon Bar” dialogue box will open. Click “OK.” Now, you’ll have a shortcut available on the Icon Bar that will open the Shareholder Loan Account register automatically.