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Sherie asks:
Q: Before realizing I should have been putting everything to owner’s investment, I repaid our joint account for approximately $2500 last year. I wouldn’t have if I 
had used my personal account, but this wasn’t all my money! Can I just do an owner’s draw? Or would I have to set up and pre-date a loan and subtract each transaction from it?
A:
You’re an LLC or Sole Proprietorship, right? If so, then an owner’s draw is all you need unless you are actually “loaning” your business money and expect it to repay you.
If you were an S Corporation, or Inc, then it may need to be a loan. It could be considered Shareholder Contributions or Shareholder Draws, depending on the terms and expectations set for the company.
First, let’s look at how you recorded the transactions that made up the $2500 worth of expenses.
If your mixed-use account is connected to Xero or Quickbooks, then all of the transactions, both personal and business were imported. Don’t delete the personal expenses, because that will throw off your bank account balance.
You will put personal expenses that are brought into your business accounting software as Owner’s Draws. Personal expenses will not hit an Expense account. They will not show up on the Income Statement (aka Profit & Loss Report) for your business.
For the transactions that were from the mixed-use account that were business expenses, you will use the appropriate business expense category from the Chart of Accounts to record the transaction.
For example, if you bought pens, then you would select Office Supplies. If you bought a hammer, you would select Small Tools. For business expenses, select the account that most closely represents what you bought.
When you are repaying yourself, because now the account is no longer mixed-use and is now business dedicated, then the $2500 would be recorded as Owner’s Draw in a lump sum.
In summary, keep the perspective on how the actual cash is being used in each transaction. The individual expenses get recorded, and when you are transferring money to yourself personally or using funds to buy personal expenses, it is a draw on business funds: the Owner’s Draw equity account.
In the case that the account was never connected to Xero, or your accounting software, then you could handle this 2 ways:
- make one bill listing all the expenses totaled by their respective Expense Account, and then pay the bill from Owner’s Contribution (also an Equity account).
- or, Create bills to specific vendors with the totals paid to them if you want to keep track of who was paid and pay each bill with Owner’s Contribution.
This way, the $2500 is paid into the business with Owner’s Contribution and all expenses are recorded. When you pay yourself back through Owner’s Draw for the $2500 of personal funds that were used to buy those expenses, it zeros out the Equity accounts.
For more resources on accounting for your business be sure to visit the rest of the blog and our page of favorite resources and books for your reading list!
