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How to Record Personal Expenses Paid With Business Funds

When you run a business, your expenses are important. However, tracking down all personal expenses you’ve paid with business funds can be challenging.

In this article, you will learn how to separate business and personal transactions and record them in your company books the right way.

What is the biggest mistake made with personal expenses in QuickBooks Online?

The biggest mistake made with personal expenses in QuickBooks Online is not properly categorizing them. Mis-categorization can lead to inaccurate reports and an inability to reconcile accounts.

It’s important to be as specific as possible when categorizing your expenses, so you can track your spending and identify any patterns.

Throughout my experience working on business bookkeeping, I found owners sometimes use their business bank accounts for personal expenses.

If this is you, you will need to create a system to ensure that the money is properly accounted for.

This could mean keeping track of what you purchased and recording them in an equity account. Always remember, equity is represented as follows: Assets – Liabilities = Owners Equity. The Owner’s Equity is the owner’s portion of the business. We’ll discuss this further in a bit.

You can record personal transactions by creating an owner’s draw account. All you’ll want to do is review personal transactions coming from your bank feed in QuickBooks and categorize them as an owner’s draw.

How to handle business transactions from my personal bank account?

You can create a reimbursement system through an accountable plan if you purchase a business item with your personal cash rather than the business’s cash.

An accountable plan allows you to reimburse yourself or employees for business transactions that were paid using your own money. 

You must meet certain requirements for an Accountability plan to satisfy IRS standards.

First, each expense must be business related. Anything that is being reimbursed to an employee or the business owner must be a legitimate business expense.

Second, you must substantiate the business transaction within a certain period. It is considered within the timeframe if you claim your reimbursement within 60 days.

Third, if you received a refund for the purchased item, you must return the money to the business as it’s no longer expenses paid.

You can download your free accountability plan here.

Always remember that personal and business expenses are not supposed to be mixed as it will create a false business bookkeeping system.

It is crucial to be as accurate and honest as possible when tracking expenses. This way, you can stay organized and avoid any potential legal issues.

What If I don’t have a business bank/credit card account and I mix business and personal transactions?

If you do not have a business bank or credit card account, you may be mixing funds which can lead to complications.

Typically, when you start a business, the owner will need to set up a business bank account separate from their personal bank account. When these accounts are separate, it is easier to keep track of money coming in and going out of the business.

If you do not have a business bank or credit card account and you mix funds, you may be subject to penalties from the IRS. You may also be subject to inaccurate record keeping.

When you establish a business bank or credit card account, it becomes easier to track expenses and file taxes.

If you haven’t done so already, take some time out to open a business checking. This way, you can easily record transactions in QuickBooks Online.

How to Record Transactions

Normally to record a transaction, you’ll go into the “For Review” tab in the banking page and run through each transaction to place them in a category.

Remember, if you have personal expenses, you’ll need to categorize those transactions in the owner’s draw account as mentioned above.

What is an owner’s draw?

Owners’ draws are the funds that business owners take from their business for personal use. This ownership draw is considered to be a decrease in ownership equity but no expense to businesses.

Quickbooks Online allows you to create an owner’s draw account or an account type called “personal expense” to report expenses outside of business activities. Do note that actual business expenses aren’t reported in these accounts.

How to record personal expenses to QuickBooks Online?

To record personal expenses in QuickBooks Online, you first need to create a new equity account to track those personal expenses.

This can be done under the “Banking” tab and then by selecting “Banking”. You’ll then review your personal expense paid through the business account and create an equity account to categorize those transactions.

Let’s see an illustration of each step:

On the left hand side, hover over banking and scroll a little over the right to click on “Banking”.

Recording personal expenses in QBO

On the banking page, you’ll see a “For Review”, “Categorized”, and an “Excluded” tab. To review uncategorized transactions, stay on the “For Review” tab.

For Review tab in quickbooks

From there, you’ll want to scroll through your uncategorized transactions and find any non business expense.

Categorize transactions for personal expenses

When you find your personal expense, click on it so it can expand.

Personal expenses in equity account

Under the category section, you’ll want to find your Owner’s Equity or Personal Expense account.

If you do not already have an owner’s equity or personal expense account, go ahead and create one. To do so, click “add new”.

Categorize Expense

You should see an Account screen pop up.

Create new account in chart of accounts

Change the default setting to the account type you want to create. In this case, let’s click on Equity.

Find personal expense account for non business transactions

You will now hit the drop down arrow next to the detail type and scroll down to “Owner’s equity” or “personal expense”.

Choose account details for chart of accounts

Let’s go ahead and click “Personal Expense”.

Find personal expense account for non business transactions

You can leave the “Name” as personal expense to easily spot the type of equity account in the future.

Go ahead and hit “Save and close” on the bottom right.

Save new account in chart of accounts

It should take you back to the transaction you want to categorize.

Next, you’ll want to input the vendor name for the transaction you are categorizing.

Categorize non business transactions

Then hit “add”.

categorize personal expense in quickbooks online

Congratulations, you’ve just recorded a personal expense under the equity account!

You’ll be able to find the transaction you’ve just recorded under the “Categorized” tab.

Check categorized tab in quickbooks


Quickbooks online is one of the most popular accounting and bookkeeping software available to business owners. It allows business owners to record transactions to track business finances and keep up with their bookkeeping as set by IRS.

You must separate business and personal expenses to avoid complications, fines, and penalties with the IRS. You can do so by properly recording personal expenses paid with business funds through quickbooks online. 


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