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Friday, April 23, 2010

The Owner Bought a Plasma TV, What do I do with That?

The owner purchased a television on his company credit card for his uncle.  A few days later the uncle sent a check for the price of the television.   How should both of these transaction be recorded?

You have no idea how many times I hear this question (not necessarily a TV but you get the idea). So let's talk about it.

First of all, unless the TV (read also: bicycle, golf club, lawnmower, vacation, etc.) had a legitimate business purpose, we as accountants want to make sure it is not recorded as an expense for income tax purposes. How do we do this? Well, I advise clients to set up an officer loan account, or a distributions account (if a partnership or Sub-S). That way when these types of shall we say "expenses" hit the books we can properly segregate them. That way you will also be aware of the amount that still need to be reimbursed from the owner/uncle/wife.

To the next part of your question, if and when you get a repayment for these items you can simply apply the amount against the loan / distributions account.

You didn't ask but I assume you also want to know how to do this in Quickbooks.

The first part is easy, when you are entering the owner's credit card statement (either in "Bills" or "Write Checks") code the amount to the above account.

Now when you get the check, it is slightly more difficult. I do it with a journal entry. This avoids setting up the uncle as a vendor or a customer.

The journal entry would be as follows for that $1,200 HDTV:

Debit - Cash $1,200.00
Credit - Officer's Loan account $1,200.00
Memo: To record reimbursement for TV on company card 4/1/2010.

On the next bank reconciliation make sure you mark the journal entry as cleared.

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