Personal Expense on Business Account

by dent8n
(Alberta)

I failed to follow one of the basic guidelines you mention on the web site. I charged personal items to the company credit card and paid the credit card bill from the business chequing account.


I would like to find a way (appropriate Quickbooks entries) to pay the company back from my Shareholder Loan without affecting a company expense account or the appropriate asset account.

I know this is not standard bookkeeping practice but I can't think of any other approach to clean things up and allow me move forward with a clean slate.

My company is incorporated and has been operating for 3 years now. I had a professional prepare my books for year 1. I used Quickbooks for year 2. I managed to keep everything separate in years 1 and 2. I'm the only shareholder in my company.

If you have any suggestions on how to clean things up I would greatly appreciate it.



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Hey,

Here are my questions to you:

Where did you code the personal expenses on the credit card?

Is your Shareholder account an asset account where you owe the corporation money ... or is it a liability account where you have lent the company money?

So for the purposes of my answer, I'm going to assume your Shareholder's Loan account is a liability where you have lent the company money.

When you processed the credit card
statement, you should have coded your personal expenses to your Shareholder Loan account using the QuickBooks drop down menu for Bank> Credit Card or clicking on the "Enter Credit Card Charges" icon under Banking.

Your personal expenses can't ... as in cannot ... be charged to as an expense on your income statement as the expenses were not related to earning business revenue. CRA frowns ... :0( ... on this, as do third party lenders / investors. It is a definite NO-NO.

It should be understood that as the personal expenses can't be expensed by the company, the GST/HST taxes paid on these expenses are not eligible for input tax credits either.

To repay the personal amounts, write a cheque or transfer funds (both functions are under the banking menu in QuickBooks) from your personal bank account to your business bank account. Code the cheque or bank transfer to the Shareholder's Loan account.

The two sets of entries nil everything out ensuring no personal expenses were expensed as a business expense nor paid by the company.






P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

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Feb 21, 2011
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starstarstarstarstar 		Further Clarification
by: dent8n

Thank you for your quick response.

As for your questions, I'm just beginning the process of updating the books for the fiscal year and I haven't coded the credit card expense items yet. I have all of the credit card and bank statements and I'm preparing to enter the transactions.

As for the shareholder account, it is a short term liability reflecting the money I have invested.

I like your suggestion to nil everything out with a corresponding deposit from my personal account but I'm not sure how the bank statement reconciliation is going to work out.

Thanks again for your help with this post.
Feb 21, 2011
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starstarstarstarstar 		Personal Expenses
by: Bookkeeping Essentials

I'm not completely sure what you mean about the bank reconciliation.

You will write a cheque from your personal bank account to deposit to your business bank account ... coded to your Shareholder Loan account. It will show as a deposit on your bank statement. When you do a bank reconciliation, it will clear.

As long as you code your personal expenses on the credit card statement to your Shareholder Loan account, the two entries nil each other out.

It should look like this when you are done:

DEBIT Shareholder Loan for personal expenses
CREDIT Credit Card Account

DEBIT Bank Account for a deposit from your personal bank account
CREDIT Shareholder Loan for repayment from personal account
Feb 22, 2011
Rating
starstarstarstarstar 		Bank Statements
by: dent8n

Thanks for the clarification on the proper entries to bring my accounts back into order.

My concern about reconciling the bank statements was more to do with timing given the original problem occurred more than 12 months ago.

Thanks for all of your help.



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Den, if your Shareholder's Account balance is in a credit position ... ie. it is a liability to the company ... then the timing is not a factor here. It would be a different story if you owed the company money in your Shareholder Account ... ie. it was in a debit balance.

Just make sure that you didn't book any of your personal expenses to your business account. All personal expenses should have been booked to your shareholder loan account.

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