What's the best way to handle out-of-pocket start up expenses in a Quickbooks file?
Question:
The owner paid cash, out of pocket, before the business checking account was established, and does not want to be paid back, but does want to show the expenses against any profits.
For the things like supplies I debited the asset account and credited capital stock, but I don't know what to do with the expenses. I don't want to show a liability by creating a payable account, so I'm at a loss. Should I treat it as petty cash? How?
There are several ways this situation can be handled. I think the easiest is the petty cash method. Create a new bank in the chart of accounts called petty cash. Use the total amount of expenses as the opening balance. Quickbooks will automatically assign this amount to the Opening Balance Equity account (you can use a journal entry to move it to Owners Equity if you like). Next, write checks using the petty cash account for all of the expenses. If you don't need to track where each of the purchases was made, you can do it all in one check. When you are finished, the bank should have a balance of $0.00, the P&L will report the expenses, and the balance sheet will show the owner contributions.
BTW, I don't think supplies should be considered an asset since they are consumable. Instead, make them an office supply expense.
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