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I am often asked by small business owners what do I do when I have paid for a personal expense using either my business checking account or credit card. As you know personal expenses are not legitimate business deductions and therefore cannot be netted against your business revenues. The first thing I tell my clients is to avoid co-mingling of funds as much as possible. Have a business checking account and either apply for a business credit card or designate one of your personal cards for business use only. But there may be times when you are shopping that you are purchasing both business and personal items at the same time and you certainly don’t want to write two checks or use two credit cards.
So here is how you book those personal expenses that you have run through your business accounts. Set up a draw account in the equity section of your books and whenever you need to post a personal expense post to that account instead of one of your expense accounts. However, if you are intending to repay your business for these personal expenses, then set up a Customer account using your name and invoice the personal expenses to that account and when you reimburse the business post the payment as you would any other customer’s payment. The balance remaining in your account at any given time is what you owe to the business. The second method is what I would recommend as the best way to handle personal expenses.
