How to handle private purchases for the business's account

It happens that as a business owner, you might need to resort to your personal credit card to cover the business's needs. The reasons can be many, such as forgetting the business card or unexpected expenses that need to be addressed immediately. Although it solves the problem at the moment, it requires you to take steps afterward to ensure that the business's accounting is accurate and organized. Here is a simple guide on how you can effectively sort out private outlays made for the business's account.

3/5/20242 min read

a person holding a green card next to a calculator
a person holding a green card next to a calculator

Document the Purchase

Always ensure to save receipts or invoices. This serves as your proof of purchase, detailing the nature and cost of the acquisition. Without this evidence, accurately recording the transaction in the accounting records would be challenging.

Registering the Purchase

With the documentation ready, you must record the purchase as an expense in the company's accounting records. The expense should be allocated to the appropriate account, depending on the nature of the purchase, ranging from office supplies to travel expenses. Concurrently, a receivable from yourself should be established to indicate that the company owes you a reimbursement for these expenses.

Refunding the Outlay

To reimburse the amount you've expended, there are a couple of options:

  • Direct Reimbursement: A straightforward bank transfer from the company's account to your personal account will settle the receivable and simultaneously decrease the company's bank balance accordingly.

  • Salary Addition: Another approach is to include the expense as an addition to your next salary payment. This method requires an adjustment in the payroll records.

Example of How It's Recorded:

Suppose you've incurred an expense of 1500 NOK for essential software:

  • At the time of expense: Debit "Software" (expense account) 1500 NOK, and Credit "Receivable Owner" (balance sheet account) 1500 NOK.

Upon reimbursement:

  • For direct reimbursement: Debit "Receivable Owner" (balance sheet account) 1500 NOK, and Credit "Bank" (asset) 1500 NOK.

The Importance of Keeping Track

Maintaining a clear record of personal purchases made for the company's account is crucial to uphold accurate and orderly accounting. It ensures the company's finances are transparent, and as the owner, you can differentiate personal expenses from business expenses.

While there may be instances where personal funds are used for company expenses, this guide demonstrates that with proper documentation and recording, it is a manageable situation that can be easily rectified. It helps keep the company's accounts organized and ensures that you, as the business owner, have a clear overview of the company's actual expenses. In some cases, consulting with an accountant to ensure everything is done according to the laws and regulations may also be wise.