How to Record a Business Expense You Paid for With Personal Money
One of the most frequent questions I receive is how to record a business expense you paid for with personal money.
We've all been there — out at a shop and left your business card at home. Or you have both your personal and business cards linked to Uber and the wrong card got charged. Maybe you don't have a business credit card and decide to make a large investment purchase with your personal credit card.
You know your bookkeeping should show this purchase as a business expense, but how?
The easiest way to do this is to "bill" yourself.
In Xero
Go to business, then bills to pay.
Create a new bill. The “to” section is yourself. The date is the date the purchase happened and the due date is when you will pay yourself back by. In the description put the expenses and where it was made (eg, Ikea purchase of new office bookcase). The account should be whatever the category would be if made through your business account.
Go into your online banking and create a transfer from your business account to your personal account in the same amount as the purchase (and bill). (You could also write a check for this).
When the transaction comes through in the bank feed, match the transaction to the bill.
In QuickBooks Online (For Essentials Plan and Above)
Click the + button in the upper right corner and select bill.
Create a new bill. The “vendor” section is yourself. The bill date is the date the purchase happened and the due date is when you will pay yourself back by. In the description put the expense(s) and where it was made (eg, Ikea purchase of new office bookcase). The category should be whatever the account would be if made through your business account.
Go into your online banking and create a transfer from your business account to your personal account in the same amount as the purchase (and bill). (You could also write a check for this).
When the transaction comes through in the bank feed, match the transaction to the bill.
Other Software
If you have the Simple Start plan of QuickBooks Online, QuickBooks Self-Employed, or another bookkeeping software which doesn’t have bill functionality, you simply need to create a transfer from your business account to your personal for the amount of the purchase. When the transaction comes through your bank feed, categorize the expense to the appropriate category. Make sure to note in the description or memo line that it is paying yourself back for a business expense made in a personal account.
Additional Software
If you have a larger business or have employees who you’re frequently reimbursing, I would recommend using an expense management software as it will make your life easier and allow you more time to focus on money making business activities. My two favorites are Xero Expenses (a feature of the Established Plan) and Expensify, which allows users to submit expenses made through non-business accounts to be recorded and reimbursed.
Conclusion
As you can see, this strategy only works for the occasional transaction. If you are mixing personal and business transactions frequently, stop (in the name of love). Not only is it legally not the best move, it's just a pain in the rear to manage. But for the infrequent purchase of a business expense using your personal money, this is the best way to record it in your bookkeeping.
I’m Morgaine Trine - the Financial Strategist and Bookkeeper at Honestly Bookkeeping, a firm dedicated to helping creative entrepreneurs create long-term wealth and build sustainable businesses.
The goal of any business isn’t to make money. It’s to support the life, dreams, and goals we each have as an individual. That just happens to take money. And since it does, I’m here to help you bring in the cash, manage it well, and make informed decisions with your finances.
When not behind the computer screen, I'm reading a book or traveling somewhere new. Probably both.
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