When an owner reimburses the business for expenses they initially paid out of pocket, the transaction needs to be recorded to accurately reflect the reimbursement in the company's financial records. Here's how you can record the journal entry for the owner's reimbursement of expenses:
1. Recording the Expense Initially Paid by the Owner
If the expense was initially recorded as being paid by the owner, the entry might look like this:
Date | Particulars | Debit (₹) | Credit (₹) |
---|---|---|---|
2024-06-01 | Expense A/c (e.g., Travel Expense A/c) | 10,000 | |
To Owner's Equity/Drawings A/c | 10,000 | ||
(Being expense initially paid by the owner) | |||
2. Reimbursement by the Owner
When the owner reimburses the company, the entry would be:
Date | Particulars | Debit (₹) | Credit (₹) |
---|---|---|---|
2024-06-10 | Cash/Bank A/c | 10,000 | |
To Owner's Equity/Drawings A/c | 10,000 | ||
(Being reimbursement of expenses by owner) | |||
- |
Notes:
- Expense A/c (e.g., Travel Expense A/c): This account represents the specific expense category that was initially paid by the owner.
- Owner's Equity/Drawings A/c: This account represents the amount that the owner has taken from or reimbursed to the business. When the owner initially pays for an expense, it is recorded here. When the owner reimburses the business, this account is credited.
- Cash/Bank A/c: This account represents the cash or bank balance of the company. When the owner reimburses the company, this account is debited.
Example:
Let's say the owner paid for office supplies worth ₹5,000 out of pocket and then reimbursed the company. The journal entries would be:
Initial Recording of Expense:
Date | Particulars | Debit (₹) | Credit (₹) |
---|---|---|---|
2024-06-01 | Office Supplies Expense A/c | 5,000 | |
To Owner's Equity/Drawings A/c | 5,000 | ||
(Being office supplies expense paid by owner) | |||
Reimbursement by the Owner:
Date | Particulars | Debit (₹) | Credit (₹) |
---|---|---|---|
2024-06-10 | Cash/Bank A/c | 5,000 | |
To Owner's Equity/Drawings A/c | 5,000 | ||
(Being reimbursement of office supplies by owner) | |||
These entries ensure that the expense and its reimbursement are accurately reflected in the company’s financial statements.