In some cases, a company owner may pay for a business expense from their personal account instead of the company’s account, either due to lack of available funds at the time, or to speed up the process.
When recording such expenses, there are two main scenarios, each with a different accounting treatment:
● Scenario 1 – The owner will be reimbursed later:
The expense is recorded as a Loan from owner and appears as a temporary liability on the company's balance sheet until the amount is repaid.
● Scenario 2 – The owner will not be reimbursed:
The expense is treated as a capital contribution and recorded under Owner’s Equity, since the amount will not be returned to the owner.
In this guide, we walk through how to record each scenario step by step.
Scenario 1: Recording an expense paid by the owner to be reimbursed later
If you pay for a business expense from your personal account on behalf of the company, you can record it as a regular cash expense.
However, instead of selecting a bank or cash account under "Paid through", you'll choose "Loan from Owner", which adds the amount as a temporary liability on the balance sheet.
Later, when the company reimburses you through its bank account, you'll record that repayment under "Bank Accounts" to clear the liability.
Once the repayment is recorded, the loan will automatically disappear from reports when its balance reaches zero.
In the following steps, we’ll show how to first record the expense as a loan, then how to record the repayment through the bank account.
To record the expense, click "Purchases" from the main menu, then click "Cash Expenses", and finally click the "Record" button.
Enter the required details, and make sure to select "206 - Loan from Owner" in the "Paid through" field.
This indicates that the amount was paid from the owner's personal account, and will be recorded as a temporary liability on the company’s balance sheet.
Once all fields are filled in, click "Save" to complete the entry.
For more information on expense fields and how to fill them out, refer to the Recording cash expenses guide.
To review the impact of the transaction on the balance sheet, click "Reports" from the main menu, then select "Balance Sheet" under the Financial Reports section.
You’ll find the “Loan from Owner” account listed under Liabilities, increased by the exact amount of the recorded expense.
Recording the reimbursement to the owner from the bank account
To record the reimbursement, click "Bank Accounts" from the main menu, select the bank account used for the payment, then click "Ledger Transactions".
Inside the account statement, add a new row and fill in the details as follows:
Date: Set the date of the reimbursement.
Description: For example, “Repayment of loan to owner”.
Amount: Enter the amount paid to the owner (as a negative value).
Classify to account: Select Loan from Owner to match the transaction with the previously recorded loan.
Tax rate: Choose the applicable tax rate for the transaction.
Source: Will show as "Manual" unless imported from an actual bank statement.
Contact: Leave blank or select the owner's name if saved as a contact in the system.
Project: Choose a project if the loan was related to a specific one.
Once saved, the balance of the Loan from Owner account will decrease. When it reaches zero, the account will automatically disappear from the balance sheet.
Scenario 2: Recording an expense paid by the owner as contributed capital
This approach is suitable when the owner covers a company expense from their personal account such as a setup cost or an urgent supplier payment.
In this case, the expense is recorded as a cash expense, but the amount is posted to Owner’s Equity, since it will not be reimbursed.
To record the expense, click "Purchases" from the main menu, then click "Cash Expenses", and finally click the "Record" button.
Enter the required details, and make sure to select "302 - Owner’s Equity" in the Paid through field.
This indicates that the expense amount is recorded as a capital contribution from the owner.
Once all the information is entered, click "Save".
For more details on expense fields and how to fill them out, refer to the Cash expense entry guide.
To review the impact of the transaction on the balance sheet, click "Reports" from the main menu, then select "Balance Sheet" under the Financial Reports section.
You’ll find the “Owner’s Equity” account listed under Equity, increased by the exact amount of the recorded expense.
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