Manage funds in and out of your business

Many small business owners need to top up their business with personal cash. They also sometimes need to take drawings from the business. Here are some common scenarios for recording funds taken or funds introduced in Xero.

How to record a business expense paid for personally

There are two options in Xero to record personal payments for business expenses, for instance if you've charged things on your personal credit card that were for the business - in either case personal expenditure should be recorded by the business as an expense claim.

Option one: payment is reimbursed with cash

This will typically be used by employees of a business who are not expected to fund the business at all.

  1. Enter the receipts into an expense claim (or as many as required) as soon as the item is purchased.
  2. Mark the expense claim as paid, taking note of the total.
  3. In your online banking, transfer the total from your Xero business account to your personal account.
  4. When the payment shows as an imported statement line the expense claim can be reconciled to the payment.

Option two: payment is not reimbursed and is treated as funds introduced

This is often the case for small businesses where items are paid for personally. These types of transactions still need to be shown in the accounts despite no reimbursement being required.

Using Xero's default account 'Owner Funds Introduced' you can record these transactions as an increase of 'non-cash' owner's equity.

  1. Enter the receipts into an expense claim (or as many as required) as soon as the item is purchased.
  2. Once the expense claim has been approved, you can pay the expense claim out of the 'Owner Funds Introduced' account rather than as cash from your bank account.

If you don't want to use the 'Owner Funds Introduced' account, you can set up any account in the chart of accounts to take payments from. You will need to have the enable payments option checked.

If you want to take back the funds introduced into the business at a later stage, you can do this by taking drawings.

If neither of these scenarios apply, you can enter a manual journal.

How to record a personal expense paid for with business funds

In many cases you might purchase a personal item using a business credit card, these personal expenses put through the business are treated as drawings.

  • The business credit card account can be added as a bank account in Xero and reconciled like any of your other accounts.

  • Enter the personal spending as a Spend Money transaction in the credit card account and code it to the default 'Owner Drawings' account - you can do this before doing your bank reconciliation.

    Drawings

  • If you want to enter the transaction during reconciliation, wait for the statement line to be imported from your online credit card and enter the details in the Create tab.

    Payment reconciled to Owner Draw account

How to take cash drawings or introduce cash

Cash taken directly from the business for personal use is treated as drawings and cash deposited directly into the business is treated as funds introduced.

  • Enter a cash drawing into Xero by adding a spend money transaction in the business bank account the money is being taken from. Code it to the 'Owner Drawings' account.
  • Enter cash introduced into Xero by adding a receive money transaction in the business bank account the money is being deposited into. Code it to the 'Owner Funds Introduced' account.
  • You can do this before doing your bank reconciliation or during reconciliation when the items comes through as a statement line imported from the business bank account.
  • Xero's default chart of accounts contains accounts for both - drawings and funds introduced.

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