Corporate expenses paid from personal accounts

[sysprg]

Hello,
I apologize for poor knowledge of accounting.
I created a new "C" Corporation (in the software development industry). The company initially did not have a bank account and office. Therefore, I paid for many corporate expenses from my personal credit card (I collect receipts billed to my own name). It such expenses as office equipment, phone bills and postage.
In addition, before incorporation I have paid for intellectual property (trademark registration and patent, which now are assigned to the corporation) from my personal credit card/account.
Recently I purchased the Peachtree Complete Accounting and I want to enter all of these expenses into the Peachtree. How can I do this?
I would like to have all equipment and intellectual property in the assets of the corporation. However, because I paid my personal money for these expenses, I want to reimburse these expenses from the corporation (in the future). Therefore, I wish to put this money into "Loan to the Corporation".
1. What transactions do I need to do to ensure that equipment and intellectual property were recorded as assets of the corporation, and personal money that I spent on these purchases were recorded as a loan to the corporation?
2. What forms do I need to print to be assured that my bookkeeping/accounting will be correct in terms of audit (including IRS) for those operations?
Best regards, Julius

[IDI]

You are on the right track to show the payments made from your personal account as a loan to the corporation. Whether you want to immediately be reimbursed for the past expenditures or at a later date, I would suggest creating a Shareholder Payable/Loan liability account, current liability or long-term if the debt will not be repaid within twelve months.

Create general journal entries using the date of incorporation or the actual acquired date, if after date of incorporation, for property, equipment, furnishings, patent/intellectual property, legal fees, operating expenses etc. Debit the aforementioned accounts and credit your Shareholder Payable/Loan account. When you are ready to reimburse yourself for the expenses write yourself a check and use the Shareholder Payable/Loan account number for the “expense” account.

I hope this helps - good luck!

Susan

[sysprg]

Dear Susan,
Thank you very much for detailed explanation. I used your instructions and successfully created the general journal entries for all transactions in the Peachtree. Tell me please, do I need to print any forms or to write any contracts or other papers for auditors or the IRS? Or will suffice to show entries in the general journal? Do I need to attach to these entries any "expense tickets" or something else?
Yours truly, Julius

[sysprg]

Additional question:

If I just add entries to the General Journal, then I cannot specify the supplier of the goods that I bought. I cannot list the specific items that I bought and their prices and so forth. Therefore, I do not have the full functionality of the "Purchase" forms. May be use of Purchase Orders is better solution? But how to pay them by credit Loan from Shareholders account???

Best regards, Julius

[IDI]

Hi Julius,

Documentation is always good! Use the DESCRIPTION field in the General Journal Entry function to enter the details of the transaction; e.g. supplier name, description of item(s) purchased, terms, etc. You can enter the same details here as through the Purchase Order function.

The Purchase Order method is another option. Set yourself up as a Vendor. The liability (credit) will go to Accounts Payable, unless you change the number to your Shareholder Loan account. If you are simply quickly reimbursing yourself (not a loan/long-term liability), just use your A/P number – it is a lot easier. Otherwise, when paying yourself you would need to change the A/P number to the Shareholder number (and then change it back afterward) and can only process the payments to yourself, any other checks printed at the same time would also be applied to the Shareholder Loan liability account.

Definitely have the receipts in with your records. I file important receipts in my tax return file, permanent (depreciable) asset file, and in with the current year (vendor file) records. Personally, I find it more efficient to have copies for supporting documentation than jumping back-and-forth between multiple files/boxes/locations. Most often the need to review a transaction will be years after the purchase/entry date.

Loans to the corporation should always be documented (amount, term, interest rate, etc.) with a formal loan agreement. Blank Promissory Note documents are available from office supply stores and on the internet.

Best regards,

Susan

[sysprg]

Dear Susan,
I am very grateful to you for a detailed explanation! They are very important to me because I have no personal experience in bookkeeping.
Thank you, now I fully understand how to do all in the Peachtree. And I still have only one question on the supporting documents.
Receipts are often written out to my personal name, but the purchased goods must be registered as assets of the corporation. Is it enough just to save all receipts and loan agreements? Or I need to support every purchase by formal contract or another legal document? If additional documents are required in real practice, then what are these documents?
Some receipts are just the e-mail that is received from suppliers of goods and services. They contain list of goods or services and their price. However, there is no seal, rubber stamp or signature. Will I have problems with the IRS because such receipts?
Yours truly, Julius

[IDI]

Hi Julius,

Without knowing specifics about your business/corporation, it is hard to say the extent of documentation you need. That said, generally there should not be a problem with any personal purchases transferred to the corporation. You are an employee of the corporation and the business is reimbursing you for business related expenses/purchases the same as if one of your employees made the purchase or incurred other costs (travel, meals, mileage, etc.) in the course of their work. On-line purchase receipts are fine – you may want to print the receipt and attached it to packing slip. Routine operating expenses do not need the same level of corporate documentation as activities such as leases, loans, long-term commitments, major purchases, etc. When in doubt document – if there ever is a concern by the IRS, our you just need a mind refresher, you will already be prepared.

Susan

[GabrielBlack]

Hi Mate

I suggest you to have all your transactions did for the company from your personal accounts
get print outs of those transactions and present before them.