The owner often purchases supplies with cash and his personal credit card. I have created an account Due to Shareholder and I enter what he has purchased. I credit Due to Shareholder and debit the account depending on what it is.
My problem is he also periodically takes out cash throughout the month to pay himself back, but it is $40.00 here and $100.00 there, etc..
I know I have to now debit Due to Shareholder but I can't tell which account to credit because he is just taking money out here and there and it obviously doesn't match to any of his receipts. Is there any easier way to deal with him paying himself back?
Should I create another account to credit or should I be crediting the account that I originally entered when he first purchased this stuff. Obviously I will just be estimating and giving a rounded off number because as I stated he takes out 40 here and 100 there. Hope this makes sense.
In Creating An Trail
I talk about how to reimburse an owner for business expenses purchased with personal funds
To assist in reconciling this account, you can see that in QuickBooks, I set it up as a credit card account (current liability) called "Owed to John Doe". I use this account solely for expense reports.
I save the Shareholder Loan account (long term liability) for actual loans / cash infusions to the company and the subsequent repayments.
My preference is for the owner to always be reimbursed by cheque. However, if the owner is being paid by cash, your entry would be DR Due to Shareholder and CR Cash … or a similar account on your chart of accounts.
If you use QuickBooks, and the cash is from shorting bank deposits, then when I book the bank deposit, I use the bottom portion of the form to book the cash withdrawal by the owner. The journal entry would end up DR Cash in Bank, DR Due to Shareholder, CR Undeposited Funds
(or Accounts Receivable if you are not using a clearing account for customer payments).
If possible, suggest the owner/manager get a separate credit card that he uses solely for business purposes
. In the event of an audit, mixing personal and business expenses invites CRA to audit both the company and the owner's personal accounts.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.