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If you use personal money to pay for expenses (advertising, equipmemt), how do you represent this in a journal entry? Normally, if the money was coming from the business, you would just decrease the cash account but in this case, the cash account is zero. Anyone?

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You're lending the money to your business by paying for it directly. The company accounts must reflect a credit (the amount you lend to it) and a debit (what it then puts that loan towards).

It's fairly normal for a small(ish) owner-driven company to reflect a large loan-account for the owners. For example, if you have a room at home dedicated for the business it is impractical to pay rent directly via the company. The rental agreement is probably in your name, you pay the rent, and you reconcile it with the company later.

You could even charge your company (taxable) interest on this loan.

When you draw down the loan from the company you reverse this, debit your loan account and credit the company (paying off the debt).

As far as tracking that expenditure, simply handle those third-party invoices in the normal way and file them for reference.

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  • You would go the loan route rather than using an Owners Contribution account? This is for a 2-person-owned, LLC. – Brian David Berman Apr 10 '11 at 21:23
  • This is where you need your accountant's advice. How you structure this needs to be in a way that is most tax efficient for you as well. – Turukawa Apr 11 '11 at 14:48
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Journal entry into Books of company:

100 dr. expense a/c 1

200 dr. expense a/c 2

300 dr. expanse a/c 3 // cr. your name 600

Each expense actually could be a total if you donĀ“t want to itemise, to save time if you totaled them on a paper. The paper is essentually an invoice. And the recipts are the primary documents.

Entry into Your journal:

dr. Company name // cr. cash or bank

You want the company to settle at any time the balce is totaled for your name in the company books and the company name in your books. They should be equal and the payment reverses it. Or, just partially pay.

Company journal:

dr. your name // cr. cash or bank

your journal:

dr. cash or bank // cr. company name

Look up "personal accounts" for the reasoning.

Here is some thing on personal accounts.

https://books.google.com/books?id=LhPMCgAAQBAJ&pg=PT4&dq=%22personal+account%22+double+entry&hl=es-419&sa=X&redir_esc=y#v=onepage&q=%22personal%20account%22%20double%20entry&f=false

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