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  #1  
Old 01-06-2007, 01:18 PM
Kendor Kendor is offline
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Business expenses paid personally

INTODUCTION

One’s business books of account are best kept as separate as possible from one’s personal financial records, but it is sometimes happens that it is convenient to pay business expenditure (capital or expenses) personally, especially in the early stages of a business. This note deals with how such payments should be entered in QB.

THREE WAYS OF ENTERING EXPENDITURE

There are several ways of entering this type of transaction. I will deal with three. The simplest is to journalise the expenditure to an Equity-type account (sole proprietorships and partnerships only). A little more complex is to journalise the expenditure to a loan account. And a little more complex still is to use a dummy credit card account. The first method is available to sole proprietorships and partnerships only while the latter two methods are available to any business structure.

As will be seen, it’s a case of “you gets what you pays for”: the more trouble you go to in entering the transactions the more information you can get out in reports.

METHODS USING JOURNAL ENTRIES

A sole trader may be happy with the simplest method of just journalising the expenditure to his Owner’s Equity Account.

A partnership on the other hand may want to be able to see at a glance what each partner has paid for personally, how much he has been repaid and the balance owing to him. Such a partnership may therefore opt for the second method of journalising the expenditure to a loan account in the name of the partner who paid the expenditure.

A corporation may also opt for the second method of journalising the expenditure to a loan account in the name of the member who paid the expenditure personally.

These journal entry methods require a journal entry:

* crediting an Equity-type account (eg Owner’s Equity/Contribution/ Draws or Partner Draws – J Smith, etc) or loan account (eg Loan Account – J Smith), as the case may be, and

* debiting the appropriate Expense Account (eg Postage) or Fixed Asset Account (eg Computers) or whatever account you would have debited had you paid the expenditure by way of a business cheque.

If a loan account is used instead of an Equity-type account, the loan account will be an Other Current Liability-type account (unless the payment is to form part of a long term loan, in which case it would be a Long Term Liability-type account.)

METHOD USING DUMMY CREDIT CARD ACCOUNT

If it is desired to enjoy the full reporting power of QB, eg the ability to get a report on all purchases from a particular supplier, the third method using a dummy credit card account should be adopted.

This method uses a credit card account, not because there is a real credit card – there isn’t – but because it happens to be a useful workaround to record the transactions concerned in a manner that results in the fullest possible reports being available.

In this method, a Credit Card-type account is opened in the name of the sole proprietor or each partner or member of the corporation who pays business expenditure personally, as if he were the credit card company. This account might be called, say, “Loan Account – J Smith”. The expenditure paid by J Smith personally is then entered as a credit card charge to the credit card account opened in his name, and when he is repaid, a cheque is drawn in the same way as a payment to the credit card company.

A FINAL THOUGHT

A final thought: I suggest that it is wise, whichever method is used, to fill in some detail of the payment under Memo, especially if you are not sure how the payment should be treated for balance sheet and/or tax purposes and you intend to leave this to your accountant/tax advisor to deal with. The information entered under Memo may not be visible on reports but it can be called up readily by drilling down to it.

Ken
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  #2  
Old 01-01-2008, 09:36 PM
millca millca is offline
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Question Newbie question

Quote:
Originally Posted by Kendor View Post
INTODUCTION

METHOD USING DUMMY CREDIT CARD ACCOUNT

If it is desired to enjoy the full reporting power of QB, eg the ability to get a report on all purchases from a particular supplier, the third method using a dummy credit card account should be adopted.

This method uses a credit card account, not because there is a real credit card – there isn’t – but because it happens to be a useful workaround to record the transactions concerned in a manner that results in the fullest possible reports being available.

In this method, a Credit Card-type account is opened in the name of the sole proprietor or each partner or member of the corporation who pays business expenditure personally, as if he were the credit card company. This account might be called, say, “Loan Account – J Smith”. The expenditure paid by J Smith personally is then entered as a credit card charge to the credit card account opened in his name, and when he is repaid, a cheque is drawn in the same way as a payment to the credit card company.

A FINAL THOUGHT

A final thought: I suggest that it is wise, whichever method is used, to fill in some detail of the payment under Memo, especially if you are not sure how the payment should be treated for balance sheet and/or tax purposes and you intend to leave this to your accountant/tax advisor to deal with. The information entered under Memo may not be visible on reports but it can be called up readily by drilling down to it.

Ken
Ken (or any other kind soul),

I'm actually very interested in using your "dummy credit card" method of tracking business expenses that were purchased using one of my personal accounts because it actually seems the most logical to my engrained Quicken mind.

I'm a sole proprietor of a web design service business and so the expenses I do purchase are usually along the lines of software and a few office supplies, etc. Not many of my expenses are passed on to my customers.

I've set up several different credit card accts for myself that relate to the various methods I use to purchase business expenses (ie, personal checking, personal savings, personal credit card, personal cash). My reasoning behind making more than one account is so I can quickly print reports for each dummy account and have it correlate to my personal Quicken accounts. Do you think this is overkill or does it seem like a logical way to track these expenses?

I'm used to Quicken's single-entry method of journal entries. So I'm finding QB's double-entry method a bit of a challenge. Your entry above was the FIRST light I've seen in helping me solve the biggest dilemma I'm currently facing in getting QB setup for my business and I've been searching for two days now. So thank you for post.

I do have a few more questions:

1. For example, if I purchase a piece of software to use in my business and happen to use my personal credit card, how do I actually enter this into QB with the above setup I've already done?

From what I can figure out so far, I have three different methods of possibly entering this expense:

1. Write a check
2. Enter a bill
3. Or directly enter it into the dummy credit card acct's register

Since I'm used to Quicken, #3 makes the most logical sense to me because this expense is not a bill, nor is a check being written at the time of me entering the expense.

2. At month's end, could I not write ONE actual check out to myself (as the Payee) and do a split entry to cover all expenses in all four of my dummy accts? Would that method take care of all double entry issues?

3. If my logic is still correct and I can proceed with the way I'm thinking, when I go into one of my dummy acct's registers, who do I enter as the Payee in this scenario? Should I enter the software store's name as the Payee; in which case, that store becomes a new Vendor, correct? Must I first enter all possible vendors or will QB allow me to do that right from the register?

4. In the off chance that I do have an expense to pass on to a client, using the dummy credit card method, how would I enter such an expense so it is billable and even markup-able? In this case, would I use "Enter a bill"? AND in this particular case, would that expense offset my income which is what I want it to do? Meaning, if I purchase something for a client that I will turn around and charge them for, I only want the markup amount to show as income when the client pays his invoice. I don't want the full amount of the expense to show up as income for my business.

Sorry for the ton of questions and I hope they aren't too stupid, but if someone can clarify the above questions I'd be forever grateful and a MUCH happier and educated QB newbie!

Thanks!

Christi
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  #3  
Old 01-02-2008, 03:36 AM
Joe Williams Joe Williams is offline
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Christi
To enter the charges into the Credit Card accounts, eitehr use Enter Credit Card Charge or enter directly into the CC register. The account on the bottom of the Credit Card charge or the Account in the register is the expense account for what you purchased.
To pay yourself for those purchases, use a Write Check and enter each of the credit card accounts and their balance or the amount you want to re-pay yourself that time.
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  #4  
Old 01-02-2008, 08:38 AM
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lisa_mn lisa_mn is offline
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I would strongly encourage you to skip all that and use a separate bank account and credit card for all your business expenses. Why do twice the work of entering it in Quicken from your personal account(s) and then enter the same thing again in QB for the business?
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  #5  
Old 03-19-2008, 02:45 PM
salvi salvi is offline
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Hello and thank you for the info.

I'm a totally newbee with Quickbooks. I purchased the Pro 2008 after attending a 3 day course of the software. I learned new things at the course, but left me with a lot of questions.

As stated in this post, I have been using two of my personal credit cards in order to purchase parts/items/supplies for my small business. I have all the receipts but I do not know how to enter them into Quickbooks. I'm a sole proprietor. Can someone please show me the one to do this but in a step by step manner? I know it was explained in the post, but I'm so new at this that I dont' understand it.

I like the dummy credit card way, but how will I post the charge when I purchase something and how do I pay myself back when I sell something and make a profit?

thank you.

Wil
wil@carpc4u.com
www.carpc4u.com
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  #6  
Old 03-19-2008, 07:38 PM
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lisa_mn lisa_mn is offline
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Quote:
Originally Posted by salvi View Post

I like the dummy credit card way, but how will I post the charge when I purchase something and how do I pay myself back when I sell something and make a profit?
Create a credit card type account with your name on it. Then go to Banking, Enter credit card charges and enter where & when you bought it, enter the amount and the category of expense (office supplies, postage, whatever)

When you pay yourself back, you'll write a check and use the credit card account as the 'expense' account.
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  #7  
Old 03-19-2008, 07:49 PM
salvi salvi is offline
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Ok, so create a CC account and when I pay myself just write a check against the CC account?

Also, how will this affect taxes since the money i'm putting has already been taxed?
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Old 03-19-2008, 07:55 PM
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lisa_mn lisa_mn is offline
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Quote:
Originally Posted by salvi View Post
Ok, so create a CC account and when I pay myself just write a check against the CC account?
Yes

Quote:
Originally Posted by salvi View Post
Also, how will this affect taxes since the money i'm putting has already been taxed?

Your taxable income will be reduced by these (presumably deductible) expenses.
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Old 03-21-2008, 01:16 AM
salvi salvi is offline
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Would Owner's Equity account be suitable as well or does it really matter?

When placing the amount spent, could I just add all the receipts and enter a total and start deducting from there everything that I ordered?

When I pay for items that I order, I first place the order and pay for it before I get to receive it. How would this work in Quickbooks since they don't have such options in it. How would this work with the inventory of the items?

Could you please provide me with details on how to do it, step by step if possible. I'm sorry, I'm a real newbee at this.

Thank you.

Wil
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Old 03-24-2008, 05:24 PM
cmmguy cmmguy is offline
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I may be naive but I would like to know why you would not submit an expense report to the "company" for the items(including the proper accounts) and then have the company reimburse you for these out-of-pocket expenses. It would seem that this would keep the accounting straight without all the extra accounting burden.

I am sure I am missing something here...
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Old 03-24-2008, 08:15 PM
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lisa_mn lisa_mn is offline
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Quote:
Originally Posted by salvi View Post
Would Owner's Equity account be suitable as well or does it really matter?
Owner's Equity presumes that you're not planning on paying yourself back.


Quote:
Originally Posted by salvi View Post
When placing the amount spent, could I just add all the receipts and enter a total and start deducting from there everything that I ordered?

When I pay for items that I order, I first place the order and pay for it before I get to receive it. How would this work in Quickbooks since they don't have such options in it. How would this work with the inventory of the items?

Could you please provide me with details on how to do it, step by step if possible. I'm sorry, I'm a real newbee at this.
it's too complicated to try to explain here, especially if you're also tracking inventory. I'd encourage you to invest some time with a certified ProAdvisor to get you going in the right direction.

CMMGUY - Your method would work too, but I believe the presumption is that there isn't cash yet to reimburse the expenses, so the "owner as credit card" method is an alternative way to track the expenses without actually reimbursing them yet. The credit card method allows the tracking of vendor bills paid by the owner personally.
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Old 05-08-2008, 09:12 AM
jmdcpa jmdcpa is offline
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Corporations

Why does the original poster say that a corporation must use a liability account as opposed to an equity account. I use an equity account for my corporate clients all the time when recording business expenses paid personally.

Joe
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Old 05-08-2008, 06:41 PM
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Maybe it's a South Africa thing.
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Old 05-13-2008, 07:16 PM
andykn andykn is offline
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Quote:
Originally Posted by cmmguy View Post
I may be naive but I would like to know why you would not submit an expense report to the "company" for the items(including the proper accounts) and then have the company reimburse you for these out-of-pocket expenses. It would seem that this would keep the accounting straight without all the extra accounting burden.

I am sure I am missing something here...
That's more or less what I do - to keep the company at "arm's length" from me as an employee.

I submit an expense claim every month and account for it as a bill.

I do hasve a dummy account (bank account) called "Andykn" that I use as a Director's Loan Account (always keep in credit in the UK, its for you to loan money to the Company, not the other way round)
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Old 05-14-2008, 08:50 PM
paperworkchick paperworkchick is offline
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Smile new to business - sole trader

hi,

i am a new business and i have quickbooks. My question is:

so far i havent had any customers yet... i have my OWN savings account (thats my own money), and i opened up a brand new business cheque account that has $0 in it..

ok ok ok..i have bought office supplies such as stationery etc...what type of bank account do i need to record all of these purchases..the big question is - i am a sole trader and i have bought all of this stuff from my own personal savings account.. i think i have done something wrong because i have put these expenses on a 'bank account'...do i instead move all of these to an equity account..

i am just a bit confused because im not going to record every single transaction that i make from my own savings account because other things i buy arent not business purposes (ie my own groceries). ..everything is showing as a negative amount when it is recorded in my 'bank account' on quickbooks...but its not really 'negative' in real life because i still have REAL money in my savings account..

please help me out here desperately thanks
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