A step-by-step YouTube tutorial (by Ronika Khanna) showing how to record business expenses paid with personal funds and how to reimburse yourself. The video demonstrates entering multiple personal-payments (a $12 pen, a $25 meal before tax, and $75 for office cleaning) into a journal entry, assigning expense accounts and suppliers, applying HST (13%) where appropriate, and crediting either Owner's Equity (for sole proprietors) or Shareholder Loan (for corporations). It also shows where the expense appears on the balance sheet and how to reimburse the owner by debiting the shareholder loan and crediting the business bank account.
Hello everyone. In today's tutorial, I am going to show you how to record expenses that relate to your business but that you have paid for personally. You may have used your personal bank account, your personal credit card, or you simply may have used cash. And just keep in mind that if you have expenses such as these, it is very important to keep the receipts as you might be audited or for your own personal reference purposes. You can keep hard copies of the receipts or you can scan them and save them in an accounting folder or attach them to the transaction as well. Okay, so this tutorial applies both to unincorporated businesses such as sole proprietorships or incorporated entities such as corporations. And I will show you the two different types of accounts to use. And we will be using a journal entry to create this transaction. Okay, so let's get started. We are going to click on +NEW on/NEW on the left hand side and under other we are going to click on journal entry. So for the journal date, you can either use the date of the transaction or you can use the period if you are entering multiple transactions. So for example, if you have several transactions in August, you could simply choose August 31st.
But again, just make sure that you have the receipts in case you need to show any evidence of these transactions. For the purposes of this example, we're going to assume that the three purchases were made in the month of August. First, you purchased a pen. Second, you paid for a meal from your personal account. And thirdly, you paid someone to come in and clean your office and only your office. Otherwise you would have to allocate it. And I suggest you refer to my video on home office expenses for that. Okay, so first of all for the pen I am going to click on account and a pen is an office expense. Let's say we pay $12 for the pen. It's a nice ish pen, not too nice, but nice enough. In the description I'm going to put pen and in term for the name, I'm going to choose Staples. It's already here. As a customer, it should not be a customer, it should be a supplier. So actually let's just add Staples as a supplier and we're going to put Staples. But since it cannot be the same name, I am just going to put Staples 2 and that's good enough. Click on save save. And Staples does charge me sales tax and I'm registered for HST in Ontario. So that is what I'm going to select from the drop down. If you're not registered for sales tax, you would simply ignore this or this box might not even be there. Okay, next we are going to put in the amount of the meal and entertainment and you had a meal with your accountant and that cost you $25 before tax. And I'm going to put a meal.
And then the name of the supplier in this case is going to be, we are just going to call it Pizza Getty, which is a feature favorite food of Quebec. And this also is a supplier. So I'm going to click on save.
And in this case you are going to put HST 13% purchases. And this here is actually an error. It is very important that this is purchases. Okay. And so for the third thing, we are just going to put sub contracts.
Direct labor, slash subcontracts. And I am going to put $75 and we are going to put cleaning office. And for the name of the person I am going to put Maria K. We're going to add her because she is not here. And it's amazing. You can simply add the supplier directly through this interface. Click on save.
And then she is not registered for sales tax. So I am going to choose exempt for purchases. So there we go. So we have a total, you'll see here, of $100 of expenses plus $4.81 for Aegis, for a total of $116.81. Now what we have to enter we had. These are the debits, debits to the expense account. So now we have to show a corresponding credit which goes to an account that reflects that you, the owner has paid for these amounts personally, but they relate to your business. Now if you are a sole proprietorship, then, and that means an unincorporated business, then you would choose owner's equity in this drop down.
Now, I don't have an owner's equity account here because the Sherlock Holmes Detectives Agency is a corporation. But I'm going to show you how to add it. So you would just add owner's equity. You probably already have it. If you're a sole proprietorship, you click on account type, you scroll down to equity and. And here you already have the owner's equity account and then you would save and close. I am not going to enter it in this case, but it's really that simple. If you are a corporation, on the other hand, you would put this to your shareholder loan account. And this distinction is important because as a shareholder of a corporation, you are separate from the corporation, which means you can actually reimburse yourself for the amount that you as a shareholder borrowed or as an employee borrowed from the Corporation. So let's click on Shareholder Loan. I have a couple I can just click on the first one and it automatically enters the total of $116.81 which agrees to that. For the description I'm just going to put paid.
By owner and you can put your own name or whoever paid for these expenses in terms of sales tax. This when on the shareholder loan account it does not apply. It is essentially out of scope because we have already reflected the taxes in the expense portion of this. So that is it. You would see simply save and close this.
And if you want to see the amount, if we go to reports.
And the balance sheet.
You can see if you click on the shareholder loan account, you you'll see the expenses show up here. Now if you want, you could reimburse yourself right away for this $116.81. And when you do that you would debit the Shareholder Loan account and credit the cash account. This often will simply just be downloaded into your bank transactions and you would select Shareholder Loan as the amount as a category in in that case, alternatively you could enter a journal entry to reimburse yourself. So you click on + new journal entry and then you're going to select shareholder loan for 116.81. And then since you're paying from your business bank account, you would select that from the drop down I'm just going to choose bank and that would be the transaction. So we save and close that.
You know, this nets off to zero. So the method that I have just shown you is the simplest way to enter transactions that you have paid for personally that relate to your business. There's a couple of other ways of doing this as well. If you have transactions and if you do this frequently and ideally you don't, ideally you use your business bank account and your business credit card to pay for your transactions. But you could also set up a separate personal bank account and allocate the transactions through there. And that'll be the subject of another video. If you want to see it, please let me know in the comments and then I will go ahead and make it so. I hope this was helpful. If you have any other questions, please please leave a comment. And if you found this video useful, please like and subscribe and have a great day.
