Pay me what you owe me!
Oh no! You just paid for something … but grabbed the wrong credit card. A personal expense hit your business account. It happens.
So what do you do now?
For many business owners, keeping business and personal funds separate is critical to protecting personal assets. If a lawsuit ever arises, an attorney may try to pierce the corporate veil, a pretty graphic term, to argue that your business and personal finances weren’t truly separate.
That’s why this matters.
But don’t panic. You’ve made the mistake – now let’s fix it.
How to Handle a Personal Expense Paid on a Business Account
There are a few clean ways to address this, depending on what’s simplest for you.
Option 1: Don’t Record the Personal Expense at All
You can choose not to record the personal expense in your accounting system.
When the credit card bill is due:
- Pay the personal portion from your personal checking account
- Only record the business expenses in your books
This approach can feel a little messy to track, but it avoids having to make correcting entries later.
The key here is documentation:
- Keep the receipt
- Make a short note explaining what happened
- Be ready to show your accountant how it was handled
Clean explanation beats complicated entries every time.
Option 2: Reimburse the Business with Personal Funds
Another option is to reimburse the business.
Here’s how that works:
- You transfer personal funds into the business account
- Record the deposit as an owner’s equity, not income
This increases cash in your business account without affecting your Profit & Loss statement.
When the credit card payment is made:
- Cash decreases
- Owner’s equity decreases
No income. No expense. Just a pass-through correction.
What Does “Document What Happened” Actually Mean?
Good documentation doesn’t need to be complicated.
Do this:
- Add a short note like: “Personal expense accidentally charged to business card”
- Keep the receipt showing it was personal
- Reference the note when you make the reimbursement or payment
QuickBooks even allows you to attach receipt photos directly to transactions, which makes this easy.
The goal is that anyone reviewing your books, including your accountant, lender, or auditor, can immediately understand what happened.
Why This Matters
Handling small details like this correctly:
- Keeps your books clean
- Protects the separation between you and your business
- Helps your tax preparer work efficiently
- Allows you to make decisions based on accurate information
Mistakes happen. What matters is how you address them.
It’s OK to Get Help
If you find these little adjustments piling up, we can help keep everything organized and clean, so you can focus on running your business. Reach out to us today at info@torlinefinancials.com to learn more about how we help you keep your books clean and your business running smoothly.
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