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SaraLL

Student help

SOLVED
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Hello! I am an accounting student learning to use Sage 50.  I have purchased the workbook with data files/online access.  We are working with the 2024 version of Sage 50. I have a question regarding one of our entries into the general journal.  

The scenario is as follows:

Business owner paid his business telephone bill using his personal chequing account;  wrote cheque #489 for $361.20 to reimburse himself for this expense.  The telephone bill was $344 plus $17.20 GST.

Uncertain whether the journal entry should be simplified to show payment of expense:

(DR) Telephone Expense $344

(DR) GST Paid $17.20

(CR) Business CHQ acct $361.20

OR should it include the withdrawal from capital to pay the bill & subsequent reimbursement (but in one transactional entry):

(DR) Telephone Expense

(DR) GST paid

(CR) Owners Equity, drawings 361.20

(DR)Owners Equity, Drawings 361.20

(CR) Business CHQ Acct 361.20

OR just record the reimbursement:

(DR) Owners Equity 361.20

(CR) Business CHQ acct 361.20

Parents
  • 0
    verified answer

    Hi  ,

    Thanks for your question! Based on GAAP principles and proper accounting treatment for owner-related transactions, here's how you can handle this:

    Recommended Journal Entry Approach:

    The most accurate way to record this would reflect both the reimbursement to the owner and the allocation of the expense. Since the owner paid the bill using personal funds, it should include the withdrawal from capital and subsequent reimbursement, as this maintains a clear audit trail. Here's the entry:

    1. Record the Expense Paid by the Owner:

      • Debit: Telephone Expense - $344
      • Debit: GST Paid - $17.20
      • Credit: Owner’s Equity, Drawings - $361.20

    2. Reimburse the Owner:

      • Debit: Owner’s Equity, Drawings - $361.20
      • Credit: Business Bank Account (Cheque #489) - $361.20

    This entry separates the personal payment and subsequent reimbursement, providing clarity for both the expense and owner’s equity.

    Why This Works:

    • GAAP Compliance: This method ensures the expense is properly categorized, and the owner's actions are clearly reflected in the equity account.
    • Clear Recordkeeping: The owner’s equity account tracks non-business transactions, while the business cheque account reflects the reimbursement.

    If you need further clarification, let us know!

    Warm Regards,
    Erzsi

    If this helps, please mark it as verified :)

Reply
  • 0
    verified answer

    Hi  ,

    Thanks for your question! Based on GAAP principles and proper accounting treatment for owner-related transactions, here's how you can handle this:

    Recommended Journal Entry Approach:

    The most accurate way to record this would reflect both the reimbursement to the owner and the allocation of the expense. Since the owner paid the bill using personal funds, it should include the withdrawal from capital and subsequent reimbursement, as this maintains a clear audit trail. Here's the entry:

    1. Record the Expense Paid by the Owner:

      • Debit: Telephone Expense - $344
      • Debit: GST Paid - $17.20
      • Credit: Owner’s Equity, Drawings - $361.20

    2. Reimburse the Owner:

      • Debit: Owner’s Equity, Drawings - $361.20
      • Credit: Business Bank Account (Cheque #489) - $361.20

    This entry separates the personal payment and subsequent reimbursement, providing clarity for both the expense and owner’s equity.

    Why This Works:

    • GAAP Compliance: This method ensures the expense is properly categorized, and the owner's actions are clearly reflected in the equity account.
    • Clear Recordkeeping: The owner’s equity account tracks non-business transactions, while the business cheque account reflects the reimbursement.

    If you need further clarification, let us know!

    Warm Regards,
    Erzsi

    If this helps, please mark it as verified :)

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