Understanding and Using Due To / Due From Accounts in QuickBooks Online

In small businesses, funds are often transferred between related entities or between owners and the business itself. To manage and track these types of inter-company or personal-to-business transactions accurately, “Due To” and “Due From” accounts can be a useful tool. In this post, we’ll cover what Due To and Due From accounts are, when they’re necessary, and how to use them properly in QuickBooks Online (QBO).

What Are Due To and Due From Accounts?

Due To and Due From accounts are used to track short-term balances owed between two parties – often between a business and its related entities, or between the business and the owner. Here’s a quick breakdown:

• Due To Account: Represents amounts the business owes to an owner or another entity. This account is a liability on the balance sheet.

• Due From Account: Represents amounts owed to the business from an owner or another entity. This account is an asset on the balance sheet.

Together, these accounts help you manage transactions where money flows between parties without impacting the profit and loss statement, keeping your records clear and accurate.

When to Use Due To / Due From Accounts

Due To / Due From accounts are useful in various scenarios, such as:

1. Owner Payments of Business Expenses: If an owner pays a business expense from personal funds, the business now “owes” the owner.

2. Owner Drawings or Loans: If an owner withdraws funds or loans money to the business.

3. Inter-Company Transfers: For businesses with multiple related entities, Due To / Due From accounts can track transfers or short-term loans between entities.

4. Temporary Advances or Reimbursements: For one-time or temporary advances, such as reimbursable expenses, these accounts help maintain a clear record until the reimbursement is complete.

How to Set Up Due To / Due From Accounts in QuickBooks Online

To set up these accounts, create a separate Current Liability account for Due To and a Current Asset account for Due From.

1. Go to Transactions > Chart of Accounts > New.

2. Account Type: For Due To accounts, select Other Current Liabilities. For Due From accounts, select Other Current Assets.

3. Detail Type: Choose Other Current Liabilities for Due To or Other Current Assets for Due From.

4. Account Name: Label the account appropriately (e.g., “Due To Owner” or “Due From Related Entity”).

5. Save and close.

Recording Transactions Using Due To / Due From Accounts

Scenario 1: Owner Pays a Business Expense

If the owner pays a business expense out of personal funds, record it as follows:

1. Go to + New > Expense.

2. Payee: Select the vendor.

3. Payment Account: Instead of selecting a bank account, choose the “Due To Owner” liability account.

4. Category: Select the appropriate expense category for the purchase (e.g., Supplies or Utilities).

5. Amount: Enter the amount paid by the owner.

6. Save and close.

This records the business expense and notes the amount owed to the owner in the “Due To Owner” account.

Scenario 2: Owner Withdraws Funds for Personal Use

If an owner takes funds from the business, record it as follows:

1. Go to + New > Transfer.

2. Transfer Funds From: Select the business bank account.

3. Transfer Funds To: Select the “Due From Owner” account.

4. Enter the withdrawal (transfer) amount and Save and close.

This transfer reflects the withdrawal as an amount owed back to the business.

Scenario 3: Repayment or Reimbursement

If the business repays the owner for any personal expenses, or if the owner repays funds owed to the business, record it as follows:

1. Go to + New > Expense (for a business repayment) or Bank Deposit (for an owner repayment).

2. Payee or Received From: Select the owner.

3. Category: Select the “Due To Owner” or “Due From Owner” account as appropriate.

4. Enter the payment or deposit amount and Save and close.

This entry clears the outstanding balance in the Due To or Due From account, marking it as settled.

Caveats and Best Practices

• Separate Personal and Business Transactions: Using Due To / Due From accounts can help, but it’s always best to keep personal and business finances separate to avoid confusion and maintain clean records.

• Regular Reconciliation: Regularly review and reconcile Due To / Due From accounts to ensure they reflect the correct balances. Outstanding amounts in these accounts should be addressed to avoid misunderstandings.

• Avoid Income and Expense Categories: Do not categorize these transactions as income or expenses, as they are balance sheet items and should not impact the profit and loss statement.

Accurate Record-Keeping for Financial Health

Using Due To and Due From accounts can help keep your business’s financial records organized, particularly for handling owner-related transactions or inter-company dealings. With clear tracking, your books will accurately reflect your business’s financial position, supporting better decision-making and simplifying tax reporting.

Need help managing complex transactions or setting up Due To / Due From accounts in QuickBooks Online? Contact us for expert guidance and personalized bookkeeping support.