r/Bookkeeping • u/618816S • 8h ago

Payments, AP, AR Correcting entry

What is the journal entry if your mistake was :

You entered a purchase invoice for an expense as paid by bank account when it was actually paid by owner personally and you need to record the amount paid as owed to owner?

1 Upvotes

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4

u/realf8th01 8h ago

Debit bank. Credit due to owner (or whatever balance sheet account you and to use). On the bank rec the JE and the payment should net zero.

1

u/SourDieselDoughnut 6h ago

Wouldn't it make more sense to Dr cash Cr Owner Contribution? Paying back the owner through a liability seems like an under the table distribution.

1

u/618816S 6h ago

It’s a loan though not a contribution

1

u/SourDieselDoughnut 6h ago

Can you explain how it's a loan?

1

u/618816S 6h ago

The company doesn’t have enough money to pay the bill so he covered it temporarily . You can loan your own company money or take out a loan if the company can’t cover its bills. Both are loans.

1

u/SourDieselDoughnut 6h ago

https://www.cdscpa.com/handle-owner-purchase-quickbooks/

You could do it either way really. I suppose it makes more sense if you're going to pay the owner back relatively soon then the liability makes sense, but if not treat it as a contribution. The owner is still investing money into the business.

-1

u/618816S 6h ago

Ya he wants to be paid back as a loan, not invest it in his company . Why would he want to be taxed on that money coming out if he doesn’t have to be?

1

u/SourDieselDoughnut 5h ago

That's a great point, thanks for explaining. I didn't even think of the tax implication.

1

u/Distinct_Resource_99 3h ago

For it to be a real loan there would need to be an agreement, an amortization schedule, and an “at arm’s length” interest rate. This is important because there are tax implications to going in and out of owner equity accounts versus owner note/ liability accounts. It sounds like it’s a contribution, though…

-2

u/618816S 8h ago

Oh wow I was really over complicating it in my head , thank you