How to Record Business Expenses: Paying with Owner Funds | QuickBooks Online US Tutorial 2018

How to Record Business Expenses: Paying with Owner Funds | QuickBooks Online US Tutorial 2018


It’s common for the owners of small businesses to contribute to their business with purchases out of their own funds. In order to enter this sort of transaction, you have to have an equity account named Owner’s Contributions on your chart of accounts. If you already have one of those set up, you don’t have to go through this step. Let’s go to the chart of accounts by clicking on Accounting. And then select New. The account type we need to create is Equity, and the detail type is Owner’s Equity. We’re going to name this account Owner’s Contributions, and then Save and Close. Now let’s enter one of the owner’s purchases for the business by opening the Create menu and then choosing expense. First let’s enter the payee for this transaction, which is David O’Brien Consulting and then enter the date that the owner spent their own money. Right here in the payment method, you can also include the method that they paid for this particular expense. The owner used their own debit card. Down here in the account details, first enter an expense account to summarize what it is they spent their money on. The owner of this business spent money on consulting fees. And in here enter a description of what it is they paid for. Then, enter the amount of money that they’ve spent. Once you’ve entered all of the expense, liability, and asset account that the owner paid for, then click the drop down arrow and choose the equity account that you set up earlier named Owner’s Contribution. Then, in the amount field, enter the minus symbol and then enter the same number that you see up here at the top right, which is 500. And then press Tab. QuickBooks is going to create a transaction that has a balance of 0, so it’s not actually going to impact the checking account that is selected right here. What’s going to happen is the expense account that we have selected right here is going to go up by $500, and the equity account is also going to go up by $500, even though it’s indicating a negative right here. Let’s Save and Close. And we can track that contribution right here on the chart of accounts with owner’s contributions of $500 that will also appear on the balance sheet. And you can track the expense on the profit and loss by going to the Reports center. And then Profit and Loss, scrolling down, here we can see those consulting fees by clicking on the total. And this is the transaction that we just entered to David O’Brien’s Consulting company for $500. Keeping track of owner’s contributions is tricky, but it’s important for evaluating the worth of the business to the owner. [MUSIC]

14 Replies to “How to Record Business Expenses: Paying with Owner Funds | QuickBooks Online US Tutorial 2018

  1. Would it not be more correct to create a short-term loan account under the owners name?

    so I pay expense $600 for electricity ( Dr) I then increase the short term loan account( CR) by $600
    this way my loan account increases at the same time as the expenses are paid.

    When I want to reimburse myself it would then be a straightforward payment out of bank account ( Dr) to reduce the short term loan ( Cr)

  2. Instead of recording the transaction with the steps you’ve shown in the video, can you also decide to use a journal entry for the same transaction by ‘debiting the expense’ paid for by the owner and ‘crediting the Equity’ which will be the Owner’s Contribution account in this situation.

  3. This is the explanation that I was looking for. Great video and presentation. Would you have a video that shows how to pay back that owner's contribution from business funds in QBO? Thank you.

  4. Can you explain why the equity account is going up $500 even though there is a negative sign there? I am just confused on the logic here.

  5. I'm in canada and we have a sales tax. How do you keep track of the sales tax on expenses? I get a negative balance every time I enter owner's contribution this way. Any tips? Thank you

  6. Hello. Please, do a video about paying a business CC with owner funds, and other video about transfers to and from a personal checking account

  7. Thank you so much for this. I have been using Journal Entries to accomplish this, knowing that this isn't the best practice. Now I can change to this method for the new year.

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