Expenses not through business bank account

1

Hi,

I have a situation that I am unfamiliar with and wondered if I could ask members the appropriate way to handle it. It’s quite simple for some I’m sure.

I’m not an accountant but I do my own bookkeeping (as simply as possible). At year end I give reports, (P&L BS etc), to my Accountant so they can input figures into their system and process my self assessment for me.

I have just changed accountant and this is the first time they have provided draft accounts from the reports I gave them.

There was a couple of expenses (cleaning and Home Office) that I have never had in my COA, and not claimed an amount for, but was told by my new accountant that I was entitled to claim an amount for each, so they have added on P&L those expense accounts and amounts on their draft accounts.

I wanted my and their accounts to be inline so I created Home office and Cleaning expense accounts in my COA.

I then added a journal entry for each expense. I selected Home office expense account then entered amount under debit column, then selected capital accounts then selected my name then funds contributed then entered the amount in credit column.

This has created the expenses on my P&L and has raised my capital account by the expenses amounts.

Is this the correct way to deal with this? Or have I got this completely wrong?

Thanks for any advice.

2

Hello @itmoto,

Welcome back.

If these were paid by the owners then your entry would be correct.

If they were paid by the business and charged as reduction of owner capital then, also, your entry would be correct.

My issue is for this entry being able to hold it’s own in audits, so my recommendation is to thoroughly document it with a spreadsheet listing and source documents.

3

Thanks for your reply @Ealfardan

I actually selected the capital account rather than a contribution of funds in the end as that is what my accountant instructed.

I’m trusting that’s the correct way but may approach accountant again to confirm.

4

Though the subaccount is a good-to-have for Management reports, it doesn’t really matter as far as taxation as long as it’s the nature and admissibility of the recovered amount and the documentation that matters the most, not the specific accounting treatment of the tax base.

5

I always go Debit home office expenses in the p&L and credit capital→ funds introduced

6

Thanks @Wornout that’s what I originally did (credited Funds contributed) but accountant wanted direct to capital account.

I will be sure to add documentation as @Ealfardan noted (thanks for that)

7

my funds contrib are a sub account of the captial account my clients in nz like to see how much they have drawn out and contributed and share of profit