Sticky Situations You May Not Know How to Handle Part 1

Sometimes, new (or even seasoned) business owners mix personal and business funds. It’s tricky to know how to properly record when you put your own money into the business—or accidentally pay for a business expense from a personal account (or vice versa).

Why It’s Tricky: If you misclassify these transactions as income or business expenses, it can distort your financial statements and tax liability. These should be categorized as “Owner’s Equity” (contributions or draws) and not regular business income or expenses.

Here's how to handle that situation in your Quickbooks account! We all make mistakes, but it shouldn't cause you undue stress in your business!

⚠️ Problem: Mixing Personal and Business Funds

Let’s address two common situations:

1. You use personal money to pay a business expense.

2. You use business funds for a personal purchase.

Each scenario requires different handling to keep your books clean.

✅ Scenario 1: You Use Personal Money to Pay a Business Expense

Let’s say you paid for a business software subscription using your personal credit card.

Step-by-Step in QuickBooks Online:

1. Go to the “+ New” button in the left navigation menu.

2. Select “Expense.”

3. For “Payee,” choose or create the vendor (e.g., Adobe).

4. In the “Payment Account” field, select “Owner’s Equity” or “Owner Contribution” (or create one if not listed—type "Owner Contribution" and click "Add new" > choose Equity as the account type).

5. Choose the Expense Category (e.g., “Software Subscriptions”).

6. Enter the amount, date, and description.

7. Click Save and Close.

📌 Why this works:You’re telling QuickBooks the business still incurred the expense, but the funds came from the owner personally—not a business bank account.

✅ Scenario 2: You Use Business Funds for a Personal Purchase

Let’s say you accidentally used your business debit card to buy groceries for your household.

Step-by-Step in QuickBooks Online:

1. Go to the Banking/Transactions tab.

2. Find the personal transaction in your bank feed (e.g., Kroger $95).

3. For “Category,” choose “Owner’s Draw” or “Personal Expenses – Owner Draw” (or create one under Equity if not available).

4. (Optional) Add a memo explaining it was a personal transaction.

5. Click Add to categorize it.

📌 Why this works:You're removing the personal transaction from your business expenses, keeping your books accurate and compliant.

🎯 Best Practices to Prevent This

• Keep personal and business accounts separate. It’s not just easier—it protects your legal and tax status.

• Create Owner Contribution and Owner Draw accounts in your Chart of Accounts under the Equity type.

• Always categorize these transactions as Equity, never as Income or Expense.

• If you have a bookkeeper or CPA, review these entries quarterly to make sure everything is correctly classified.