Transfer money from personal account to business account journal entry
As a business owner, it is quite common to need to transfer funds from your personal bank account into the business account.
There are a few reasons why you might need to do this. Perhaps you need to pay for some business expenses with personal funds because you haven’t yet deposited enough cash into the business account. You may simply want to invest your personal savings into the business in order to help it grow.
Whatever the reason, transferring cash from your personal account to your business account is perfectly normal and happens quite often. Just be sure to keep good records of all your transactions so that you can stay organized and on top of your finances.
Maintaining clear records is essential for any business owner. Not only does it help to track income and expenses, but it also provides a valuable record of business activity. However, it is important to maintain a clear separation between personal and business records. Personal records should not be mixed with business records, as this can create confusion and complicate financial reporting.
Furthermore, personal records should not be used to make business decisions. By keeping personal and business records separate, business owners can ensure that their finances are well-organized and that their decision-making is based on accurate information.
Even if the owner controls 100% of the business, the record should be separate from each other. The cash transfer from personal to a business account is a new investment into the business. It is the capital injection of the owner into the business.
Journal Entry for transfer cash to business account
It may sound simple as the owner transferring cash from the personal account to the business account. But for accounting, we have to make proper records between individuals and companies.
The company received cash from the owner and record it on the balance sheet. At the same time, it has to record another account as well. There are two possible scenarios that impact the company’s financial statements.
- Record as the equity
The cash that owner transfer to the company represents the equity investment that invests into the company. It will increase the owner capital on the company balance sheet.
The journal entry is debiting cash and credit owner capital.
| Account | Debit | Credit |
|---|---|---|
| Cash | XXX | |
| Owner Capital | XXX |
- Record as the Liability
The cash that company receives from the owner is the debt that company borrows from owner. It will increase the liability on the balance sheet. The company has the obligation to pay back to the owner who is the creditor.
The journal entry is debiting cash and credit debt.
| Account | Debit | Credit |
|---|---|---|
| Cash | XXX | |
| Debt to owner | XXX |
Example
Mr. John is the owner of company ABC. Due to financial difficulties, he decides to transfer cash $ 100,000 to the company bank account. It is the money that he lends to the company and it expects to pay back after 3 years. Please prepare a journal entry for money transfer from a personal account to company account.
The owner has lent money $ 100,000 to the company. So when receiving cash, company needs to record debt to the owner.
The journal entry is debiting cash $ 100,000 and credit debt to owner $ 100,000.
| Account | Debit | Credit |
|---|---|---|
| Cash | 100,000 | |
| Debt to owner | 100,000 |