It’s always better to separate personal and business expenses as it simplifies the bookkeeping. However, if the owner of the business has paid business expenses using a personal credit card then they need to be recorded as expenses of the business in the accounting records.
If for example an owner pays business travel expenses of 150 using a personal credit card, then the amount would be debited to the travel expense account.
Journal Entry for Using Personal Credit Card For Business
The accounting records will show the following bookkeeping entries when a personal credit card is used for business.
Using Personal Credit Card For Business Bookkeeping Entries Explained
The debit represents the travel expense which is a cost to the business.
The owner has paid for the travel using their personal credit card. Until the amount is paid by the business it has an outstanding liability represented by the credit to the owners drawings account.
The Accounting Equation
The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus equity of the business. This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.
|None||=||None||+||-Expense + Drawings|
|0||=||0||+||-150 + 150|
In this case the travel expense has reduced net income, retained earnings and the equity of the business. This has been matched by the credit to the drawings account increasing the owners equity in the business.
The drawings account is a temporary account and is cleared at the end of each year. In this case the account is cleared either by a credit against the capital account, or repayment to the owner depending on the circumstances.
Popular mdct.ru Examples
The personal expenses journal entry is one of many accounting journals, discover another mdct.ru example at the links below: