How do I record expenses paid from my personal account?

Why this question matters

Paying a business cost from your personal bank account is one of the most common “real life” bookkeeping situations, especially for sole traders, freelancers, and small limited companies in their early days. It also happens in established businesses when someone is traveling, a company card isn’t available, or an urgent payment needs to be made quickly. The tricky part is that the expense is genuinely a business cost, but the cash didn’t leave the business bank account. If you record it the wrong way, your accounts can end up showing confusing totals, inaccurate profit, or a messy “where did the money go?” trail when you try to reconcile bank statements.

This article explains how to record expenses paid from your personal account in a clean, consistent way. You’ll learn the logic behind the entries, the differences between business types, how to handle VAT or sales tax where relevant, and practical workflows you can follow whether you use accounting software or a spreadsheet. The aim is to help you keep your books accurate, your reimbursements tidy, and your year-end accounts easy to prepare.

What “recording” really means: profit vs. cash

Before the “how,” it helps to understand what you’re trying to achieve. When you pay a business expense personally, two things are true at the same time:

First, the business has incurred an expense (for example, travel, supplies, software, or a subscription). That expense should be recorded so your profit is correct. Profit is about what the business used, consumed, or owed during a period, not just what came out of the business bank account.

Second, the business now owes you money (if you intend to be reimbursed), or you have contributed money to the business (if you don’t intend to be reimbursed). That “owed” or “contributed” piece is a balance sheet issue: it affects what the business owes or what the owner has put in, not the profit and loss statement.

So a good record does two jobs at once: it captures the expense in the right category and it captures the personal payment as either a liability to you, an equity/owner movement, or a loan depending on your situation.

The key question: reimbursement or no reimbursement?

The simplest way to choose the correct bookkeeping treatment is to decide what is supposed to happen next:

1) You will reimburse yourself. In this case, the business owes you money. You record the expense and a liability (an amount payable to you). When the business later pays you back, you clear that liability.

2) You will not reimburse yourself. In this case, you’ve effectively injected money into the business. You record the expense and you record an owner contribution (or director contribution depending on business form). There may still be a “balance” in an owner’s account, but you’re not treating it as a short-term payable that must be repaid.

3) It’s a loan arrangement. If you regularly fund the business personally and treat it as a loan (possibly with interest), you record the expense and a loan liability. Later repayments reduce the loan balance.

Most small business scenarios fall into the first category: you paid personally and you want the business to reimburse you. Even if you don’t reimburse every single time, using a consistent “due to owner/director” account can keep your books neat, and you can decide later whether to actually repay it.

How it works in double-entry terms (plain English)

Bookkeeping is easiest when you think in “what increased and what decreased.” When you pay a business expense from your personal account, the business did not spend its own cash. Instead:

The expense increases (for example, “Travel,” “Office Supplies,” “Software Subscriptions”). Expenses increase on the profit and loss statement.

A liability or equity balance increases (for example, “Due to Owner,” “Director’s Loan,” “Owner’s Contributions”). This is the balancing entry on the balance sheet. It reflects that the business either owes you or that you have funded the business.

So the core journal looks like this:

Debit (increase) the relevant expense account
Credit (increase) the amount owed to you (or owner/director account)

Later, when the business reimburses you from the business bank account:

Debit the amount owed to you (reduce the payable/loan balance)
Credit the business bank account (cash leaves the business)

That’s the entire story: record the cost as a business expense, and record the payment source as a liability (or equity movement) rather than as business cash spending at that moment.

Choosing the right “personal payment” account

Many people get stuck because they don’t know what account to credit. Here are common choices and when to use them. The correct label may vary by country and software, but the concept is the same.

Owner’s Drawings (sole traders and partnerships)

If you are a sole trader, the business and the owner are legally the same person in many jurisdictions, but bookkeeping still tracks business activity separately. A common approach is to use an account often called “Owner’s Drawings” or “Owner’s Funds” to record what the owner has taken out or put in. For personal payments of business expenses, many sole traders use an “Owner’s Funds Introduced” or “Owner’s Contributions” account (equity) or a “Due to Owner” account (liability) depending on whether reimbursement is expected.

If you want the cleanest day-to-day bookkeeping, use a “Due to Owner” style account for personal payments. This shows a running balance of what the business owes you. If you decide not to reimburse yourself, you can later reclassify the balance as owner contribution without changing the expense categories.

Director’s Loan Account (limited companies)

If your business is a limited company (or similar corporate structure), you and the company are separate legal entities. If you pay for company costs personally, the company typically owes you reimbursement unless it is treated as a contribution or a formal loan. Many accountants track these movements through a “Director’s Loan Account.” That account shows how much the company owes the director (if the balance is credit) or how much the director owes the company (if the director has taken money out).

Using a director’s loan account creates a clear audit trail. It can also help keep payroll and dividend accounting separate from expense reimbursements, which is especially useful at year end.

Employee Reimbursements Payable (for staff)

If an employee paid for a business cost with their own funds (for example, a taxi, parking, or client lunch), treat it like any other payable: record the expense and record a liability “Employee Expenses Payable” or similar. When you reimburse them, clear the liability.

How to record it in accounting software

The exact clicks differ across platforms, but nearly all systems can handle this smoothly. The most common approaches are:

Approach A: Enter a bill or expense and assign it to “Due to Owner/Director”

Many systems let you record an expense without paying it from a bank feed. You create the expense (or bill) as if the business incurred it, then choose a liability account such as “Due to Owner,” “Director’s Loan,” or “Reimbursements Payable” as the payment or posting account.

This method is ideal when you plan to reimburse, because it builds a clear amount owing and you can later record a payment from the business bank account to you and match it against that balance.

Approach B: Use a journal entry (for more control)

If your software supports journals and you are comfortable with them, you can post a journal entry:

Debit the expense category (and VAT input tax if relevant)
Credit the “Due to Owner/Director” account

Then, when you reimburse, record a payment from the bank account to you and allocate it to the “Due to Owner/Director” account rather than to an expense category. This prevents double-counting the expense.

Approach C: Create a “clearing” bank account called “Personal Funds”

Some people set up a dummy bank account called “Personal Account” or “Cash Paid Personally” and record the expense as if it was paid out of that account. This can work, but it can also confuse cash reporting because it looks like the business has another bank account. If you use this approach, it’s best to treat the “Personal” account as a clearing account that you reconcile to your “Due to Owner/Director” balance, or you keep it at zero by periodically posting transfers.

For most small businesses, a liability-based method is clearer and more standard.

How to record it in a spreadsheet (simple but robust)

If you use a spreadsheet rather than full accounting software, you can still keep clean records. Here’s a practical setup:

Create a table with these columns

Date, Supplier, Description, Expense Category, Net Amount, Tax Amount, Gross Amount, Paid By (Business/Personal), Reimbursable (Yes/No), Notes, Receipt Link/Reference.

Track a running “Due to Owner” balance

Add a separate summary section that calculates:

Total personal-paid reimbursable expenses for the period
Minus reimbursements paid out of the business bank
Equals balance owed to you

When you reimburse yourself, record the reimbursement as a line item in a “Reimbursements” table with date and amount, and subtract it from the owed balance. This mirrors what accounting software does with a payable account.

Keep categories separate from payment source

The most common spreadsheet mistake is mixing “how it was paid” with “what it was.” For example, someone might create a category “Paid personally” and put everything there. That makes it impossible to understand the business’s true spending on travel, software, marketing, and so on. Your categories should reflect the nature of the cost. Payment source should be a separate field.

VAT or sales tax: what changes when you paid personally?

Tax handling is often the most sensitive part. The payment source (personal vs business bank) does not automatically change whether an expense is allowable or whether VAT/sales tax is reclaimable. What matters is whether the purchase is a legitimate business cost and whether you have proper documentation that meets your jurisdiction’s rules.

VAT-registered businesses: input tax on personal-paid expenses

If your business is VAT-registered (or registered for a similar tax), you may be able to reclaim input tax on qualifying expenses even if you paid personally, provided the purchase is for the business and you keep acceptable evidence (usually a VAT invoice or receipt with required details). The bookkeeping entry still follows the same pattern:

Debit the expense net amount
Debit VAT input (tax) account for the VAT amount
Credit the amount owed to you for the gross amount

When you reimburse yourself, reimburse the gross amount unless you have a policy that reimburses net only (uncommon and usually not recommended). Reimbursing gross keeps things simple and consistent with the fact you actually paid gross.

Mixed-use purchases: split business and personal elements

Some costs have a personal element (for example, a mobile phone plan, home internet, or a trip that includes personal days). If you paid personally, you should still split the expense so only the business portion hits the profit and loss statement. The business portion might be based on a reasonable method such as usage percentages or days used for business.

For VAT/sales tax, only the business-related portion is usually eligible for reclaim, subject to local rules. In bookkeeping terms, you can split the line into two parts: one business expense plus tax as appropriate, and one personal portion posted to drawings or personal expense (not deductible). The liability owed to you should reflect the total you plan to reimburse. If you are not reimbursing the personal portion, only credit the owed account for the business portion and treat the rest as personal spending not flowing through the business.

Reimbursements: the most common “double counting” trap

A classic mistake happens when someone records the original expense as a business expense and then records the reimbursement as another business expense. This doubles the cost in the profit and loss statement.

The correct reimbursement entry is not an expense. It is a settlement of what the business owes you. So the reimbursement should be coded to the “Due to Owner/Director” account, not to “Travel,” “Supplies,” or “Miscellaneous.”

If you see your expense categories unusually high, or your profit lower than expected, double counting reimbursements is one of the first things to check.

Examples you can copy

Example 1: You bought office supplies personally and will reimburse yourself

You buy printer paper for 24.00 using your personal card. You want the business to reimburse you.

Record the expense:

Debit Office Supplies: 24.00
Credit Due to Owner: 24.00

When the business pays you back 24.00 from the business bank:

Debit Due to Owner: 24.00
Credit Business Bank: 24.00

Example 2: You paid for software personally and you are VAT-registered

You pay 60.00 gross for a software subscription, including 10.00 VAT (net 50.00, VAT 10.00). You will reimburse yourself.

Record the expense:

Debit Software Subscriptions: 50.00
Debit VAT Input: 10.00
Credit Director’s Loan / Due to Owner: 60.00

Reimbursement:

Debit Director’s Loan / Due to Owner: 60.00
Credit Business Bank: 60.00

Example 3: An employee pays for travel and submits an expense claim

An employee pays 18.50 for a taxi and submits a receipt. You reimburse them in the next payroll run or via bank transfer.

Record the expense and payable:

Debit Travel: 18.50
Credit Employee Expenses Payable: 18.50

When reimbursed:

Debit Employee Expenses Payable: 18.50
Credit Business Bank: 18.50

Example 4: You decide not to reimburse yourself

You pay 120.00 for a business conference ticket personally but decide not to reimburse yourself because you’re injecting funds into the business.

Record the expense:

Debit Training and Conferences: 120.00
Credit Owner Contribution (or Capital Introduced): 120.00

This keeps profit accurate while reflecting that the business was funded by the owner.

Receipts and documentation: how to stay audit-ready

Even if you are extremely confident a cost is business-related, your records are only as strong as your documentation. Paying personally can make documentation even more important because the business bank statement won’t show the transaction. Here are practical habits that make life easier:

Keep the receipt or invoice. Store it digitally (PDF or photo). Make sure the date, supplier, and amount are visible.

Write a short purpose note. A one-line note such as “Client meeting travel” or “Laptop adapter for office” helps you remember later, and it can be valuable evidence of business purpose.

Match the receipt to the bookkeeping entry. Use a reference number or file name that ties the document to the transaction line. If you use software, attach the receipt to the transaction.

Separate personal and business where possible. If you regularly buy business items, consider getting a business card or using a dedicated method, even if it’s still paid personally and reimbursed. It reduces confusion and makes records easier to trace.

Handling mileage and per diem style expenses

Some expenses aren’t a “receipt from a supplier” in the normal sense. Mileage claims, per diem allowances, and certain types of employee expenses are often calculated rather than directly evidenced by a receipt.

For mileage, you typically need a mileage log showing date, start and end points, purpose, and miles/kilometers. The payment to you is usually a reimbursement for business travel using your personal vehicle. Bookkeeping-wise, it’s still an expense plus a payable to you until reimbursed.

For per diem or daily allowances where permitted, keep records of the trip and policy applied. Record the expense and the liability, and clear it when paid.

What about personal purchases that are partly business assets?

Sometimes you buy something personally that the business will use for more than a year: a laptop, camera, machinery, or furniture. These are not always treated as immediate expenses. They may be treated as fixed assets and depreciated (or capitalized and amortized) depending on local rules and the business’s accounting policy.

The payment source still does not change the basic structure. Instead of debiting an expense category, you debit an asset account (for example, “Computer Equipment”). You credit “Due to Owner/Director” for the amount you paid. Later reimbursements reduce the payable.

In practice, many small businesses have thresholds (for example, items under a certain value are expensed; over that value are capitalized). Even if you’re not sure at the moment of purchase, you can initially record it to a temporary category such as “Purchases to Review” and then reclassify later once you know whether it should be an expense or an asset.

Multi-currency personal payments

If you travel or buy from international suppliers, you may pay personally in a different currency. The key is to record the amount in your bookkeeping currency using a consistent conversion method (for example, the exchange rate on the transaction date or the rate used by your card provider). The amount owed to you should match what you actually paid in your home currency if you plan to reimburse yourself in that currency.

Keep the card statement line or payment confirmation that shows the converted amount. If you reimburse based on a different exchange rate than the one used on the original personal payment, you can end up with small gains or losses. Many businesses treat minor differences as exchange gains/losses or rounding differences. The important thing is to be consistent and keep evidence of the conversion.

End-of-month and year-end cleanup

Personal-paid expenses are easy to forget because they don’t appear in the business bank feed. A simple routine can prevent missing costs and can keep your accounts accurate:

Monthly review of personal statements for business costs. Scan your personal bank or card transactions for business-related items and record them promptly. This keeps your profit reporting accurate and avoids a year-end scramble.

Reconcile the “Due to Owner/Director” balance. If you use a liability account, make sure the balance matches your own record of what you’re owed. If it doesn’t, it usually means an expense was recorded but not reimbursed, a reimbursement was coded incorrectly, or an expense was missed.

Attach receipts and notes. If you wait until year end, you may not remember what a specific charge was for. Attaching documents as you go reduces stress and makes your records stronger.

Common mistakes and how to avoid them

Mistake 1: Coding the expense to “Owner Drawings” only

Some people record personal-paid business expenses as “drawings” and stop there. That can remove the cost from the profit and loss statement and make it look like the business is more profitable than it really is. The fix is to always record the nature of the cost in a proper expense category (or asset account) and use drawings/contribution/loan only for the payment source side.

Mistake 2: Reimbursement posted as an expense

As noted earlier, reimbursement is not a second expense. It’s a payment that clears an amount owed. Always code reimbursements against the liability/loan account used when the expense was recorded.

Mistake 3: Using “miscellaneous” for everything

When you pay personally, it can be tempting to put it all into one bucket. That reduces the usefulness of your accounts. Categorize costs based on what they are: travel, software, marketing, professional fees, office supplies, training, and so on. Your future self will thank you when you want to understand spending patterns or prepare for tax filings.

Mistake 4: Missing VAT details or claiming tax without proper evidence

Tax authorities often care about documentation. If you’re reclaiming VAT or sales tax, make sure you have the right kind of invoice or receipt and that it supports the claim. If documentation is missing, record the expense without reclaiming tax and correct it later if you obtain proper evidence.

Mistake 5: Mixing personal spending into reimbursements

If you reimburse yourself for personal items by accident, you can create both bookkeeping and tax issues. A good habit is to only reimburse expenses with supporting receipts and a clear business purpose note. If a receipt includes personal items (for example, a supermarket purchase that includes office coffee plus personal groceries), split it and reimburse only the business portion.

Practical workflows that keep things painless

Workflow 1: The “expense claim” habit (works for owners too)

Even if you’re the owner, treat personal-paid expenses like an employee expense claim:

Collect receipts in a folder (digital or physical).
Once a week or month, enter them into your system.
Create a list of amounts owed to you.
Reimburse yourself in one transfer and code it to the amount-owed account.

This creates a clear paper trail and reduces the number of small transfers.

Workflow 2: Use a dedicated card for business purchases, even if personally paid

If you can, use one personal card only for business expenses, then reimburse yourself. This keeps your personal spending separate and makes it far easier to identify business transactions. You still record them as “paid personally,” but the review process becomes much faster.

Workflow 3: The “monthly close” checklist

At month end:

Check personal transactions for business costs.
Post any missing expenses and attach receipts.
Verify that reimbursements were coded to the right account.
Review the balance owed to you and decide whether to reimburse now or leave it as a payable/loan balance.

When you should consider changing your approach

Occasional personal payments are normal, but if personal spending is becoming the main way the business operates, it may be worth adjusting how you handle finances. Consider a business card, a separate petty cash system, or a more formal loan arrangement if:

You have frequent personal-paid business costs.
You struggle to keep receipts organized.
You often forget to record expenses until year end.
You want clearer separation between business and personal funds.

The goal isn’t to eliminate personal payments entirely. It’s to ensure they’re recorded consistently and transparently.

How to decide whether it’s a business expense at all

Recording something properly doesn’t automatically make it allowable for tax or appropriate for the business. A good rule of thumb is that a business expense should be incurred wholly and exclusively (or primarily, depending on local rules) for business purposes. In practical terms, ask:

Would you have bought this if you didn’t run the business?
Does it directly support earning revenue, delivering services, or operating the business?
Do you have evidence of the business purpose (receipt and a note)?

If the answer is unclear, consider splitting the cost, recording only the business portion, or asking a qualified accountant for guidance based on your jurisdiction.

Putting it all together: a simple decision tree

When you pay a business cost personally, follow this sequence:

Step 1: Identify what the cost is (expense category or asset).
Step 2: Decide whether the business will reimburse you.
Step 3: Record the expense (and tax if applicable).
Step 4: Credit the correct account: Due to Owner/Director/Employee Payable, or Owner Contribution if not reimbursing.
Step 5: When reimbursed, post the payment against the amount-owed account, not as an expense.

Final reassurance

Paying business expenses from your personal account doesn’t have to create messy books. As long as you separate “what the expense is” from “how it was paid,” your profit will be accurate and your balance sheet will show a clear amount owed to you (or a clear contribution). Keep receipts, add quick notes, and use a consistent account such as “Due to Owner” or “Director’s Loan” to track the balance. Once this system is in place, reimbursements become straightforward, and month-end or year-end bookkeeping becomes dramatically easier.