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Equity #2 Record a Business Expense paid using Personal Money in Xero
Josh asks:
Q: How do you input an Expense in Xero when buying something for the business, but don’t really expect the business to pay it back?
A: For a business expense where you don’t expect to be paid back and you simply used personal money to buy something for the business, use the Owner’s Equity (aka Contribution or Investment) account. This is only applicable when the business structure is a Sole-Proprietor or LLC.
You’ll record an expense as a bill because the payment for it will not be coming out of a business bank or credit card account. Then you will apply payment to the bill from the Owner’s Investment account to show that you used your own money to pay for the expense.
In your Xero organization, you will:
1. Create a Bill for the purchase as usual, entering the Vendor or Store Name where the expense was bought, the date of purchase, and the item details.
2. Select the expense account for the actual item bought.
3. Approve the Bill
4. At the bottom of the bill, record payment and select Owners Investment, instead of selecting a bank account or credit card.
If the Owner’s Investment account is not showing up as an account to select to record payment and you only see bank accounts, don’t fret. Simply navigate to the Settings main menu, and *TIP: if you’re on a Mac using Chrome, hold down Command key, while clicking on the Chart of Accounts. This will keep your current window open and open the Chart of Accounts in a new tab.
Once you are in the Chart of Accounts, click on the Equity tab and select the Owner’s Investment account. A pop up window for the account details will open; at the bottom of this pop up, check the box next to “Enable Payments to this account.”
Now, if you go back to your Bill, refresh the window. *Tip: on a Mac, press Command+R to refresh the page. Scroll down to record the payment again and the Owner’s Investment account will now be an option to select.
