Paying for Business Expenses with Personal Funds? Here’s How to Record Them in QuickBooks Online!

As a small business owner, you may occasionally need to cover business expenses using your personal funds. Whether it’s paying for supplies, travel, or software subscriptions, it’s essential to record these transactions correctly in QuickBooks Online (QBO). Failing to do so can lead to inaccurate financial statements and tax issues.

In this post, we’ll cover:

• Why properly recording personal payments for business expenses matters

• The best way to categorize these transactions in QBO

• Common mistakes to avoid

Why Properly Recording Personal Payments for Business Expenses Matters

When you pay for a business expense using personal money, the transaction is not automatically captured in your business bank feed. If left unrecorded, your financial reports will:

1. Understate expenses, making it look like you spent less than you actually did.

2. Overstate your profits, leading to potential tax implications.

3. Distort cash flow, making it harder to track your real business financial health.

Accurate bookkeeping ensures that these expenses are counted correctly and reimbursed properly when necessary.

How to Record Business Expenses Paid with Personal Funds in QuickBooks Online

There are a few ways to handle these transactions in QBO, depending on whether you plan to reimburse yourself or treat them as an owner’s contribution.

Option 1: Record as an Owner’s Contribution (No Reimbursement Needed)

If you do not plan to reimburse yourself, you can record the expense as an owner’s contribution (for sole proprietors, partnerships, or single-member LLCs) or capital investment (for corporations).

Steps in QBO:

1. Go to +New → Select Expense.

2. Choose the vendor and enter the expense details.

3. Under the Payment Account, select Owner’s Equity (for sole proprietors/partnerships) or Capital Contributions (for corporations) instead of a bank account.

4. Categorize the expense correctly (e.g., Office Supplies, Travel, Software, etc.).

5. Save and close.

💡 Tip: This method ensures the business records the expense while recognizing that the owner personally covered the cost.

Option 2: Record as a Reimbursable Expense (If You Plan to Pay Yourself Back)

If you plan to reimburse yourself, the expense should be recorded as a liability until repayment occurs.

Steps in QBO:

Step 1: Record the Expense

1. Go to + New → Select Expense.

2. Enter the vendor and expense details.

3. Under Payment Account, select Owner’s Loan (for sole proprietors/partnerships) or Due to Owner (for corporations).

4. Categorize the expense correctly.

5. Save and close.

Step 2: Reimburse the Owner

1. When you're ready to reimburse yourself, go to + New → Select Check or Expense.

2. Enter your name as the Payee.

3. Choose Owner’s Loan / Due to Owner as the category.

4. Enter the reimbursement amount and save the transaction.

💡 Tip: If you frequently pay business expenses personally, consider tracking them separately and reimbursing yourself in batches rather than one by one.

Common Mistakes to Avoid

• Not Recording the Expense at All – If the transaction isn’t recorded, your profit will be overstated, and tax deductions may be missed.

• Mixing Personal and Business Transactions in QBO – Only business-related transactions should be recorded in QBO. Do not add personal expenses.

• Using an Incorrect Account – Make sure the payment is categorized properly (Owner’s Equity vs. Loan Payable).

• Not Keeping Receipts – Always keep receipts or digital records in case of an audit.

How We Can Help

Properly recording business expenses paid with personal funds is crucial for accurate bookkeeping and tax compliance. We ensure that transactions are categorized correctly in QuickBooks Online, your financial statements reflect the true financial position of your business, and you don’t miss deductible expenses that can lower your tax liability.

📩 Need help keeping your books clean? Contact us today!